The euro advanced, climbing the most against the yen in more than two years, after Greece proposed a package of spending cuts and tax increases aimed at securing a bailout and avoiding being pushed out of the currency union.
After months of talks, which sent euro-dollar implied volatility soaring to the highest since 2012, Greece offered to meet most of the demands of its creditors in exchange for a 53.5 billion euro (US$59.7 billion) rescue package. The euro remained higher against the dollar after US Federal Reserve Chair Janet Yellen said she still expects to raise interest rates this year and repeated that the pace of increases will be gradual.
“The market is reading it about right,” Alan Ruskin, global head of Group of 10 foreign exchange at Deutsche Bank AG, said in an interview on Bloomberg Television.
Photo: Reuters
“The probability of a deal now has risen extraordinarily over the past 24 hours,” Ruskin said.
The euro surged 2.3 percent to ¥136.92 at 5pm in New York and rose as much as 2.5 percent earlier, the biggest gain since April 2013. The yen weakened 1.2 percent to ¥122.78 per dollar. Europe’s single currency climbed 1.1 percent to US$1.1162.
Greek Prime Minister Alexis Tsipras sought parliament’s support for the proposals on Friday. The Greek parliament passed the proposal early yesterday, with 251 votes in favor and 32 against.
The plan is to be discussed at an EU leaders summit today in Brussels.
“They’re literally kicking the can down the road,” said Fabian Eliasson, head of US corporate foreign-exchange sales at Mizuho Financial Group Inc. “If they repackage this deal, and Greece gets some kind of haircuts, I don’t think the market will be talking about it until it blows up again, which I think it will at some point.”
The premium on contracts to sell the single currency against the dollar in three months’ time over those to buy narrowed to 1.7 percentage points, the least in four months, risk-reversal prices show.
The yen weakened at least 0.9 percent against all of its major peers as the news from Europe and a rally in Chinese stocks dampened demand for haven assets.
The yen fell from near its strongest level in seven weeks versus the dollar as the Shanghai Composite Index of stocks extended its two-day rally to 11 percent. The gauge gained 4.5 percent on Friday, having tumbled more than 30 percent from its peak last month.
Three-month implied volatility, a measure of anticipated price swings in the euro-dollar exchange rate based on options, fell to 11.2 percent, the lowest end-of-day level since May 21. It climbed to 12.4 percent on Wednesday, the highest since June 2012.
“If we’d gone into Grexit, we could have seen some substantial volatility next week,” Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd in London, said in an interview on Bloomberg Television’s Countdown with Anna Edwards.
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