Bloomberg News

Euro Reaches One-Month High as Debt Concern Eases; Rand Rallies

June 07, 2011

June 7 (Bloomberg) -- The euro appreciated against the majority of its most-traded peers as the European Central Bank signaled its approval of Greek bond rollovers and equities advanced for the first time in a week.

The single currency reached a one-month high versus the dollar and the yen. The Dollar Index slid to the lowest in more than a month before Federal Reserve Chairman Ben S. Bernanke speaks on the economy. South Africa’s rand gained against the dollar as reserves data suggested the government is doing less to mute the currency’s strength.

“The general risk appetite of the market is firming and it looks as if peripheral concerns are abating, both of which are supportive of the euro,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. “Economic fundamentals right now show no reason to be long dollars.” A long position is a bet that an assets will increase in value.

The euro advanced 0.8 percent to $1.4693 at 2:56 p.m. in New York and reached $1.4697, the highest level since May 5. The single currency climbed 0.8 percent to 117.70 yen. It touched 117.90, the strongest in a month. The Japanese currency was little changed at 80.11 per dollar.

Dollar Down

IntercontinentalExchange Inc.’s Dollar Index, which measures the greenback against the currencies of six trading partners, fell 0.6 percent to 73.526, after touching the lowest since May 5.

Bernanke is scheduled to speak at 3:45 p.m. Eastern time to bankers in Atlanta.

The Standard & Poor’s 500 Index rose 0.5 percent, snapping four consecutive days of losses. The MSCI World Index also gained 0.5 percent.

South Africa’s rand was the best performer against the dollar, rising 1.3 percent to 6.7060, after reports showed the central bank’s foreign currency and gold reserves fell. The rand has gained 16 percent against the dollar in the past year.

“The numbers suggest that after a period of aggressive intervention, the authorities are doing less to combat rand strength,” John Cairns and Nema Ramkhelawan, currency strategists at Rand Merchant Bank in Johannesburg, wrote to clients. “The bottom line is that the authorities can’t do much about the currency, even if they wanted to.”

Franc Prices

The Swiss franc weakened against all 16 of its most-traded counterparts as data showed consumer prices were steady last month, damping speculation that the nation’s central bank will raise borrowing costs.

Consumer-price inflation in May was unchanged from a month earlier, the Federal Statistics Office in Neuchatel said today. Prices rose 0.4 percent from a year earlier. Economists’ median estimate was for a monthly decline of 0.1 percent.

The franc weakened 0.4 percent to 83.75 centimes from 83.46 yesterday.

The yen fell against 13 of 16 most-traded counterparts after being the top performer yesterday and touching a one-month high against the dollar.

Japan’s Finance Minister Yoshihiko Noda said in Tokyo today he’s monitoring the yen’s appreciation while conceding that the market’s view on the U.S. economy was likely behind its moves. It was the first time in a month Noda announced he’s watching the markets, a comment that Japanese officials have made in the past as a preliminary signal they may intervene in the currency market.

Intervention Reading

“If Japanese stocks suddenly collapse the possibility of joint intervention will be increased but the current comment from the Finance Minister seems to be just a bluff,” said Mamoru Arai, a senior currency trader at Mizuho Financial Group Inc. in New York. “We have lots of Japanese customers put in buy orders under 80, so the market does not want to try the downside now.”

ECB President Jean-Claude Trichet yesterday gave his first signal that he endorses encouraging investors to buy new Greek bonds to replace maturing securities, potentially making the debt situation more sustainable.

A debt rollover is being considered as an alternative means of easing Greece’s funding squeeze, two officials familiar with the matter said last week on condition of anonymity. Investors may be given preferred status, higher coupon payments or collateral as incentives to roll over the holdings when they mature, two separate officials, who declined to be identified because the talks are in progress, said last week.

The euro has strengthened 1.2 percent in the past week, according to Bloomberg Correlation-Weighted Currency Indexes, underpinned by signs of recovery in Europe.

--With assistance from Keith Jenkins in London, Theophilos Argitis in Ottawa, Toru Fujioka in Tokyo and Frederic Tomesco in Montreal. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

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


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