EUR/USD, GBP/USD, USD/JPY and USD/CAD: February 1, 2012

EUR/USD

Bondholders negotiating a debt swap with Greece may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on the new bonds, people with knowledge of the talks said. In discussions late last week in Athens, creditors lowered their demands  for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses, people familiar with the matter said at the time. While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant -- which would pay bondholders more if the Greek economy rebounds -- would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points, said two people, who declined to be identified because the talks are confidential. Greece and private creditors are near a tentative accord that would in principle include the warrants, the people said. As an additional inducement for creditors, the debt would be governed under U.K. rather than Greek law, providing greater bondholder protections, people with knowledge of the matter said. Questions over whether Greece can fulfill conditions for a second aid package from the European Union and International Monetary Fund have put the accord on hold for now, they said.

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GBP/USD

U.K. stocks  rose as most countries in the European Union agreed to tighter budget controls and results from ARM Holdings Plc and British Sky Broadcasting Group Plc reassured investors in the outlook for earnings.ARM, whose chip designs are used in Apple Inc.’s iPad,added 2 percent as sales and earnings topped analysts’ ‘estimates. BSkyB rose 3.7 percent after posting earnings before interest, taxes and exceptional items that beat estimates. The benchmark FTSE 100 Index gained 10.52, or 0.2 percent, to 5,681.61 at the close in London, rebounding from two days of losses. The FTSE All-Share Index climbed 0.3 percent, while Ireland’s ISEQ Index increased 0.4 percent. “The market is moving to a place of thinking that we are in a recovery and because of that the market is willing to take a bit more risk,” said Fredrik Nerbrand , global head of asset allocation at HSBC Holdings Plc in London. He spoke in a Bloomberg Television interview with Owen Thomas. The FTSE 100 jumped 2 percent this month, extending its rally from last year’s lowest level to 15 percent amid speculation that the euro area will contain it sovereign-debt crisis, China will ease monetary policy and the U.S. economic recovery will strengthen.EU leaders, meeting in Brussels yesterday, completed a fiscal-discipline treaty that speeds sanctions on high-deficit states, requiring euro countries to anchor balanced-budget rules in national law. Eight countries outside the euro backed the pact, while Britain and the Czech Republic boycotted it. The policy makers, meeting at the 16th summit in two years, also agreed to bring the region’s permanent bailout fund, the European Stability Mechanism, into operation on July 1, a year ahead of schedule.

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USD/JPY

Japanese makers of cars, chips and computers said profit would be less than previously expected this year as the stronger yen undermines a recovery from output setbacks caused by the March 11 earthquake. Honda Motor Co., the nation’s No. 3 automaker;  Toshiba Corp., its biggest chipmaker; and  Fujitsu Ltd, the largest computer services firm, lowered their earnings forecasts yesterday for the year ending March 31.Toshiba, maker of televisions, aerospace components, nuclear reactors and notebook computers, said the stronger Japanese currency would probably reduce operating profit by 40 billion yen ($524 million). Costs from floods that shut factories in Thailand cut another 40 billion yen from the previous projection for 300 billion yen, Makoto Kubo , executive vice president, told reporters in Tokyo yesterday.“The most important thing is the exchange rate for next fiscal year,” Masaru Hamasaki, chief strategist at Toyota Asset Management Co. in Tokyo, said yesterday by phone. He said he expects the currency to weaken to as far as 85 yen against the dollar in 2012. The Japanese currency’s gain of about 9 percent against the euro and 5.5 percent versus the dollar last year reduced the value of earnings repatriated from overseas and made the country’s exports less cost-competitive.

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USD/CAD

Canadian stocks were little changed, set for a monthly gain as raw-materials producers headed for their biggest advance in a month since August 2010.Oil-sands developer Black Pearl Resources Inc. plunged 10 percent after saying it missed its year-end production goal. Potash Corp. of Saskatchewan Inc., the world’s largest fertilizer producer by market value, dropped 1.3 percent after an analyst at Goldman Sachs Group Inc. cut her rating on the stock. Intact Financial Corp., Canada’s biggest property and casualty insurer, rose 3.4 percent after an analyst at National Bank of Canada forecast a “solid quarter.”The S&P/TSX Composite Index increased 5.45 points, or less than 0.1 percent, to 12,441.87 at 3:08 p.m. Toronto time, extending the monthly climb to 4.1 percent.“We’ve had some fairly good reaffirmation that the U.S. economy is on track,” Greg Taylor, a money manager at Aurion Capital Management in Toronto, said in a note to clients. The firm oversees about C$5.5 billion ($5.5 billion). “It also feels like the European headlines are more in the background. A bit of the risk-on trade is back.”The index is climbing for the second month in the last 11.Mining companies gained on economic data showing a stronger U.S. economy and the U.S. Federal Reserve’s plan to keep interest rates at historical lows until at least late 2014. The S&P/TSX slumped 11 percent last year as the European debt crisis led to concern global growth would slow and demand for raw materials would decrease. Resources companies make up 48 percent of Canadian stocks by market value, according to Bloomberg data.

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