Bloomberg News

Euro Gains as Moody’s Considers U.S. Debt Review, Merkel Stand

June 02, 2011

June 2 (Bloomberg) -- The euro gained versus the dollar to the highest level in almost a month as Moody’s Investors Service said it may place the U.S. government’s rating under review for possible downgrade and German Chancellor Angela Merkel said she’s committed to the shared currency.

The euro extended gains after Moody’s said its decision will be based on progress by Congress and the Obama administration on increasing the statutory debt limit in coming weeks. The euro also strengthened as the region’s policy makers considered asking investors to reinvest in new Greek debt when existing bonds mature. The dollar dropped against the majority of its most-traded peers as weaker economic data added to speculation the nation’s recovery is slowing.

“It’s still a major theme and I don’t see any compelling reason in the medium term to actually want to be a dollar buyer,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “The economics fundamentally support dollar weakness across the board and that would just add to the fiscal risk premium.”

The euro rose 1.1 percent to $1.4491 as of 5 p.m. in New York from $1.4328 yesterday. It touched $1.4514, the most since May 6. Europe’s common currency climbed 1.1 percent to 117.23 yen. The dollar fell 0.1 percent to 80.90 yen.

South Africa’s rand and Norway’s krone rose the most among the major currencies as commodities advanced. The Thomson Reuters/Jefferies CRB Index of 19 raw materials rose 0.6 percent.

Top Performers

The rand gained 1.8 percent to 6.7150 per dollar and the krone rose 1.3 percent to 5.3759 versus the greenback.

The euro has gained 2.7 percent this year, versus a 6 percent drop by the dollar and a 5.6 percent decline for the yen, according to Bloomberg Correlation-Weighted Currency Indexes, which track 10 developed-nation currencies.

“Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” ECB President Jean-Claude Trichet said in a speech today in Aachen, Germany. He also favors giving the European Union powers to veto the budget measures of countries that go “harmfully astray,” though that would require a change to EU treaties. Yesterday he said the ECB “will continue to deliver price stability.”

The bank raised its key interest rate by 25 basis points to 1.25 percent in April, even as Portugal joined Greece and Ireland in requesting financial aid from the EU and the International Monetary Fund. In comparison, the Federal Reserve and Bank of Japan are holding rates near zero.

No ‘Euro Problem’

“We don’t have a euro problem in Europe,” Merkel said in a speech in Singapore today on the final day of a three-day Asia trip that also took her to India. “We have more of a debt problem. Financial markets doubt whether some EU states can manage their debt in the long-term.” Germany is committed to the euro, which is stable, she said.

Spain today sold 4 billion euros ($5.8 billion) of bonds, meeting the maximum target the Treasury set for the sale. Demand for three-year bonds, which were sold along with four-year notes, was 2.49 times the amount sold, compared with 1.79 last month, and the bid-to-cover ratio for the longer-maturity debt was 2.9.

In Japan, the Diet’s lower house voted 293-152 against the no-confidence motion against Kan, as opposition lawmakers failed to attract enough support from his Democratic Party of Japan. Former DPJ premier Yukio Hatoyama called for party unity in rejecting the bill after Kan said he would step down once the disaster is contained.

Earthquake Issues

Deepening discontent over the government’s handling of the March earthquake and tsunami that precipitated the worst nuclear disaster in 25 years prompted the measure.

U.S. jobless claims fell by 6,000 to 422,000 in the week ended May 28, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 417,000, according to the median forecast.

The Labor Department will release May unemployment figures tomorrow. Goldman Sachs Group Inc. yesterday revised its estimate for an increase in May nonfarm payrolls to 100,000 from 150,000, while Citigroup Inc. trimmed its projection to 100,000 from 170,000. The median estimate in a Bloomberg News survey is for a gain of 165,000 following a 244,000 April increase.

“Everybody’s revising down their expectations for tomorrow’s numbers,” said Steve Butler, managing director of foreign-exchange trading in Toronto at Bank of Nova Scotia’s Scotia Capital unit. “Clearly the market is looking for bad news tomorrow.”

--With assistance from Cecile Vannucci in New York and Candice Zachariahs in Sydney. Editors: Paul Cox, Greg Storey

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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