Bloomberg News

Euro Rises From Almost 10-Month Low Versus Dollar as Stocks Gain

September 13, 2011

Sept. 13 (Bloomberg) -- The euro rose from almost the lowest level against the dollar since February as stocks gained, spurred by a recovery of French bank shares and stronger investor demand for higher-yielding assets.

The 17-nation currency weakened earlier after German Chancellor Angela Merkel and French President Nicolas Sarkozy failed to announce joint initiatives on the region’s debt crisis, as speculation said they would. French banks advanced after dismissing concern about access to funds. Currencies of commodity-exporting countries, such as South Africa’s rand and the Canadian dollar, rose as raw-material prices increased.

“There’s been an aggressive turnaround in sentiment toward French banks, and that’s why you’re seeing the euro hold in here,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The euro looks a little bit stronger, but all the issues and problems that got us here, nothing has changed in the last 24 hours.”

The euro ended the day little changed at $1.3678 at 5 p.m. in New York, after sliding to $1.3495 yesterday, the lowest level since February. It earlier rose as much as 0.4 percent. The shared currency fell 0.4 percent to 105.25 yen, after touching 103.90 yesterday, the lowest since June 2001.

The currency briefly pared gains after German Finance Minister Wolfgang Schaeuble said Greece wouldn’t get more aid.

The Standard & Poor’s 500 Index was up 0.9 percent after earlier falling as much as 0.4 percent.

Merkel Views

Merkel said in an interview with the Berlin-based broadcaster Inforadio she won’t let Greece fall into “uncontrolled insolvency” because the risk of contagion for the other euro-zone countries “is very big.” The so-called troika of the International Monetary Fund, European Central Bank and European Commission representatives will return to Greece this week, Merkel said.

Societe Generale SA, which had plunged 8.1 percent, rallied 15 percent and BNP Paribas SA added 7.2 percent following a 12 percent retreat after the French banks said they are able to finance their operations.

The rand snapped three days of declines and Canada’s dollar rose for a second day.

“We’re having a positive global macro backdrop and some technical conditions that favored a correction in the rand’s weakness,” Michael Roche, an emerging-market strategist at MF Global in New York.

Commodities Move

The rand advanced 1.5 percent to 7.3032 to the greenback. The Canadian dollar strengthened 0.7 percent to 98.57 cents per U.S. dollar.

The Thomson Reuters/Jefferies CRB Index of raw materials rose 0.5 percent and crude oil added 2.3 percent to $90.21 a barrel in New York. Oil is Canada’s biggest export

A spokesman for Sarkozy, Franck Louvrier, rejected a report by Reuters that he and Merkel would announce today joint initiatives on Greece to stem the debt crisis.

Options traders turned the most bearish on the euro this week in almost eight years, signaling the currency may extend its 4.8 percent drop this month, as Europe struggles to stem the sovereign-debt crisis.

The premium for options granting the right to sell the euro over those that allow for purchases reached the most yesterday since at least October 2003, when Bloomberg began tracking the data. Bets on a drop in the 17-nation currency outnumbered wagers on a gain last week by the most since January, reversing a so-called net-long position two weeks ago.

Options Trend

“I don’t see any fundamental reason why the downward trend in the euro should stop,” Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt, said in an interview. “It’s a combination of a euro-area debt crisis that’s going into a new round and the impression that the ECB is more willing to play a more proactive role in this crisis and use interest rates to support” weaker economies, he said.

Italy’s Treasury sold 3.9 billion euros ($5.3 billion) of five-year bonds at an average yield of 5.6 percent, compared with 4.93 percent on July 14, the last time securities of a similar maturity were sold. Demand was 1.28 times the amount on offer, compared with a bid-to-cover ratio of 1.93 at the previous sale. The Treasury had aimed to sell a maximum of 4 billion euros.

The euro was boosted yesterday after an Italian government official said talks had been held with Chinese counterparts about potential investments in Europe’s third-largest economy. The purchase of Italian bonds was not the focus of the meetings, which took place in the past few weeks, the official said on condition of anonymity, without specifying which assets may be involved.

China Role

“The story itself provided some interest, but I don’t think necessarily it turns the tide,” said Jeremy Stretch, executive director of foreign-exchange strategy in London at Canadian Imperial Bank of Commerce. “The problem for Italy is the size of the stock of debt. It’s a pretty big hole and even the Chinese would struggle to fill that one up on an ongoing basis.”

The cost of insuring against default on European sovereign and bank debt rose to records on mounting concern a default by Greece will trigger losses for banks holding the nation’s bonds, according to CMA. Credit-default swaps signal a 98 percent probability of default.

The euro has dropped 4.8 percent against the dollar this month.

The yen strengthened as risk aversion earlier prompted investors to buy the currency as a refuge. It has appreciated 2.9 percent in the past week, the best performer among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes.

The yen tends to appreciate during economic and financial turmoil because Japan’s current-account surplus makes the nation less reliant on foreign capital.

--With assistance from Allison Bennett and Liz McCormick in New York and Lukanyo Mnyanda in Edinburgh. Editors: Paul Cox, Greg Storey

To contact the reporters 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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