Euro Rises as European Leaders Work to Ease Concern on Greece

The euro rose from a three-week low against the dollar as European leaders tried to allay concerns that they were unprepared to aid Greece, easing pressure on higher-yielding assets.

Europe’s common currency earlier fell after German Chancellor Angela Merkel told investors they shouldn’t expect this week’s European Union summit to agree on assistance for Greece. The franc touched the strongest level since the introduction of the euro in 1999, and the pound rose versus 15 of its 16 most-traded counterparts tracked by Bloomberg.

“The euro is very sensitive to headlines,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. The firm is the world’s largest custodial bank, with more than $20 trillion in assets under administration. “Greece isn’t asking for a bailout, just lower rates to borrow at. Players want to stay within striking distance at $1.35.”

The euro rose 0.2 percent to $1.3558 at 5 p.m. in New York, from $1.3530 on March 19. It earlier fell to $1.3464, the weakest level since March 2. The 16-nation currency depreciated 0.3 percent to 122.21 yen, after touching 121.06, the lowest level since March 5, from 122.51. The greenback slid 0.4 percent to 90.14 yen, from 90.54.

Greece will bring its budget deficit back within European Union limits, and talk of the country leaving the euro zone is a “joke,” Prime Minister George Papandreou said in a speech to parliament. Greece’s deficit was more than four times the EU’s 3 percent maximum last year.

Juncker, Trichet

Luxembourg’s Jean-Claude Juncker, who heads the group of euro-region finance ministers, said he’s “convinced” Greece’s fiscal plan will allow it to reduce its deficit within the timeframe granted by the European Commission. He spoke today to the European Parliament.

European Central Bank President Jean-Claude Trichet said the ECB is prepared to reassess its collateral rules if necessary, softening its stance as Greece struggles to cut the region’s largest budget shortfall.

“This is not a calm and relaxed market,” said Greg Anderson, a currency strategist at Societe Generale SA in New York. “The market’s been strung along by headlines saying that a resolution is coming, but there’s never any resolution. It will take some kind of permanent news on Greece to break the euro-dollar out of its range.” The currency has traded between $1.3436 and $1.3839 since Feb. 8.

‘Precipice of a Slide’

The euro may slide against the dollar even if the EU devises a plan to aid Greece at the summit this week, according to Standard Bank Plc.

“It is a key week for Greece and the EU, which leaves euro-dollar staring over the precipice of a slide to $1.25,” Steve Barrow, head of Group of 10 currency strategy at the firm in London, wrote today in a report. “It might seem to be a problem of Greece’s own making but, in our view, it’s a problem of the EU’s own making and this means the euro will still fall even if Greece is helped.”

The franc appreciated to a record 1.4309 per euro as traders bet the Swiss National Bank is relaxing a policy of selling the currency to curb its strength. It gained even after the central bank repeated today it will continue to “act decisively” to prevent an “excessive” appreciation of the currency if needed.

Franc as Refuge

SNB President Philipp Hildebrand is struggling to tame the currency as deficits and debt in Greece, Portugal and Spain boost demand for the franc as a refuge. Its strength is fueling concern deflation will take hold after prices fell in two straight months for the first time in a year.

“The Swiss National Bank faces a dilemma,” Mansoor Mohi- uddin, a Singapore-based strategist at UBS AG, the world’s second-largest currency trader, wrote in a research note. “Over the last year it has intervened against the franc to ward off deflation. But now Switzerland’s recovery suggests the SNB may need to raise interest rates well before the ECB, putting renewed upward pressure on the franc. History suggests the SNB will have to let the currency appreciate.”

The pound rose against the dollar after U.S. stocks rose and traders covered bets the currency would depreciate. The Standard & Poor’s 500 Index gained 0.5 percent, reversing an early loss.

“The rebound in equities caused the pound to rise,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “You still have the positioning which is fairly extreme, and when that happened you have those moves that appear somewhat larger than any underlying news would suggest.”

Sterling Bets

Futures traders increased bets the pound would drop against the dollar to 63,987 on March 16, from 63,473 a week earlier, according to Commodity Futures Trading Commission data. The amount is 5.6 percent below a record 67,549 reached on March 2.

Sterling rose 0.6 percent to $1.5100 and strengthened 0.4 percent to 89.78 pence per euro.

Asian currencies weakened, led by Malaysia’s ringgit, on speculation more central banks in the region will raise interest rates this year, curtailing economic recovery. The Reserve Bank of India unexpectedly increased its benchmark rate on March 19.

The ringgit fell 0.5 percent to 3.3185 per dollar. It reached 3.293 on March 17, its strongest since August 2008.