The euro rose against a majority of its most-traded counterparts as an agreement on a second international bailout for Greece reduced investor concern the region’s debt crisis will worsen.
The 17-nation currency reached a three-month high against the yen this week and broke through key technical levels against its Japanese and US peers.
The US dollar dropped against its higher-yielding counterparts as reports showed an improving economic recovery, dampening demand for safety.
Currencies of commodity-exporting countries rallied as oil surged and volatility fell to a three-year low. The European Central Bank (ECB) will offer banks unlimited three-year loans next week.
“There was some optimism following the Greek deal and optimism ahead of next week’s second liquidity tender by the ECB,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc. “The euro is rallying and all gauges of risk appetite are pointing to a risk-on week, whether it’s the Australian dollar, the New Zealand dollar, crude oil or the [US] dollar being down.”
The euro rose 2.3 percent to US$1.3448, reaching US$1.3487, the highest level since Dec. 2. It rallied 4.4 percent to ￥109.18, reaching ￥109.25 on Friday for the first time since Oct. 31. The yen weakened 2.1 percent to ￥81.20 per US dollar and touched ￥81.22, the weakest level since July.
The implied volatility of three-month options on G7 currencies as tracked by the JPMorgan G7 Volatility Index fell to 9.71 percent on Friday, the least since Aug. 8, 2008, as options traders scaled back the risk of large exchange-rate swings. Lower volatility makes investments in currencies with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.
The Swiss franc led gains against the US dollar among the 16 most-traded currencies tracked by Bloomberg. The currency appreciated 2.6 percent to SF0.8960 against the greenback and gained 0.3 percent to SF1.2051 per euro.
Meanwhile, the pound fell the most in eight months versus the euro this week as Bank of England (BOE) minutes showed two policymakers voted for a larger increase in asset purchases than agreed at this month’s meeting.
Gilts advanced after Bank of England policymaker David Miles said he and Adam Posen voted to add ￡75 billion (US$119 billion) to the central bank’s stimulus plan because the economy is in a “precarious situation.” The Monetary Policy Committee finally agreed on a ￡50 billion increase. Sterling fell to a two-month low against the euro as a report confirmed Britian’s GDP shrank last quarter.
The pound depreciated 2.3 percent this week to ￡0.849 per euro at 4:11pm London time on Friday, the biggest weekly drop since June 3.