Bloomberg News

Euro Rises on Speculation Region’s Leaders Will Contain Crisis

September 29, 2011

Sept. 29 (Bloomberg) -- The euro strengthened versus the dollar as investor bets increased that leaders in the region will agree on measures to aid member nations that are struggling to pay their debts.

The 17-nation currency gained against most of the major currencies after Germany’s lower house of parliament approved the expansion of a bailout fund to help contain the sovereign- debt crisis. The yen touched below 77 per dollar for the first time in two weeks as stocks rose, spurring demand for higher- yielding assets. New Zealand’s dollar weakened after Fitch Ratings cuts its long-term foreign-currency issuer default rating.

“People are delighted to see that Germany approved the expansion of the European Financial Stability Facility,” said Kathy Lien, director of currency research with online trading firm GFT Forex in New York. “It means that progress can be made and another hurdle can be passed. We see a broad-based improvement in sentiment and risk appetite.”

The euro gained 0.2 percent to $1.3569 at 2:43 p.m. in New York after rising to $1.3690 yesterday, the strongest since Sept. 21. The currency appreciated 0.2 percent to 103.97 yen. The yen was little changed at 76.63 per dollar.

The yen and dollar have gained the most against eight developed-nation counterparts this month, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has added 7.2 percent and the dollar rose 7.2 percent.

The Japanese currency has outperformed its major peers this quarter, gaining 11.9 percent in the past three months while Australia’s dollar fell 4 percent and the Swiss franc dropped 2.5 percent.

German Vote

Lawmakers in the Bundestag voted 523 in favor of legislation aimed at expanding the powers of the 440 billion- euro ($600 billion) EFSF, while 85 voted no and three abstained. The legislation is set to be debated and put to a non-binding vote in the upper house, or Bundesrat, tomorrow. All 17 euro members must approve the changes to the EFSF before they go into effect.

The vote in Berlin on changes to the EFSF allows the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros from 123 billion euros.

“We’re taking piecemeal incremental steps in trying to move forward,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “Markets are cautiously optimistic, but the euro problems are far from resolved. People are inching their way back into risk.”

Greek Views

About 93 percent of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent foresee the currency bloc losing at least one member in the next year.

New Zealand had its long-term foreign-currency issuer default rating cut to AA from AA+ by Fitch, which cited a high level of debt and unfavorable economic growth. The long-term local-currency rating was cut to AA+ from AAA. The outlook on both ratings is stable.

The kiwi, as the currency is nicknamed, fell 1.2 percent to 76.71 per U.S. dollar.

The Standard & Poor’s 500 Index fell 0.3 percent after gaining as much as 2.2 percent. The Thomson Reuters/Jefferies CRB index of raw materials added 0.8 percent.

Brazil’s real rose 0.3 percent to 1.8462 per dollar and the British pound gained 0.2 percent to $1.5609, rising from a one- year low of $1.5328 reached last week.

Gains in the euro were tempered after Italy’s borrowing costs rose at a government debt sale today. Italy’s five-year credit-default swaps were at 472 basis points today, showing traders see a 34 percent chance for the nation’s nonpayment, compared with 4.6 percent for the U.S.

Economic Growth

The U.S. economy expanded at a 1.3 percent annual rate in the second quarter, faster than the 1 percent estimated last month, revised figures from the Commerce Department showed today. The median forecast of economists surveyed by Bloomberg News was 1.2 percent, following a 0.4 percent increase in the first three months of the year.

Claims for U.S. unemployment benefits dropped by 37,000 in the week ended Sept. 24 to 391,000, the fewest since April, Labor Department figures showed today. The Applications fell more than forecast last week as an atypical calendar alignment made it more difficult for the government to adjust the data for seasonal changes. Economists forecast 420,000 claims, according to a median estimate in a Bloomberg News survey.

The won snapped a two-day gain versus the dollar after a report showed the current-account surplus narrowed in August, dimming the growth outlook for Korea’s export-led economy.

The surplus was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said today.

“The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.

The won fell 0.3 percent to 1,173.70 per dollar.

--With assistance from Masaki Kondo in Singapore and Simon Kennedy in London. Editors: Paul Cox, Dave Liedtka

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Garth Theunissen in London gtheunissen@bloomberg.net

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


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