Bloomberg News

Euro Rises on Bank Recapitalization Talks, Bernanke’s Aid Pledge

October 04, 2011

Oct. 4 (Bloomberg) -- The euro rose from a eight-month low versus the dollar after Federal Reserve Chairman Ben S. Bernanke signaled he may take additional easing steps and on bets European leaders are discussing how to aid the region’s banks.

The 17-nation currency strengthened for the first time in three days against the greenback on speculation that the U.S. central bank may implement a third round of quantitative easing, which would debase its currency. The shared currency extended its gains and higher-yielding currencies rose on speculation European Union officials are examining how to recapitalize banks, boosting optimism the region’s debt crisis can be contained.

“Bernanke was very supportive of the markets, saying that the Fed is prepared to take further steps to help the economy,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York.

The euro appreciated 1.3 percent to $1.3349 at 5 p.m. in New York, from $1.3176, after touching $1.3146, the weakest since Jan. 13. It rose 1.6 percent to 102.54 yen from 100.97 yen yesterday. It touched 100.76, the least since June 2001. The dollar rose 0.2 percent to 76.81 yen.

EU Talks

The Financial Times quoted Olli Rehn, European Commissioner for economic affairs, as saying there is an “increasingly shared view” that the region needs a coordinated approach to halt the sovereign debt crisis.

“You had a tired market that was constantly pushing lower,” said Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc. “Whether it was that article of other developments in the marketplace, it seemed like there was a squeeze into the close.”

The Standard & Poor’s 500 Index rallied 2.3 percent after earlier dropping of as much as 2.2 percent.

Mexico’s peso rose 2.1 percent to 13.7439 against the dollar. It has fallen 11.5 percent so far this year.

The euro traded at 27.9 on its 14-day relative strength index against the dollar, falling below 30 for a second day. It was at 29 on a similar index versus the yen. A reading below 30 signals that an asset may be due to reverse direction.

Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades on concern the government will struggle to reduce the region’s second-largest debt amid chronically weak growth.

Italy Rating

Moody’s lowered Italy’s rating three levels to A2 from Aa2, with a negative outlook, the New York-based company said in a statement today. The action comes after Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years. Italy was last cut by Moody’s in May 1993.

The franc fell against the euro amid speculation that the Swiss National Bank may adjust the cap set last month to further weaken the currency.

“There is unsubstantiated talk in the market that the level may be changed to further limit gains in the franc,” said Chris Walker, a currency strategist at UBS AG in London. “People seem to be wary of pushing the franc higher.”

The franc depreciated 0.7 percent to 1.2231 per euro. SNB spokeswoman Silvia Oppliger declined to comment on the currency’s movements.

European finance ministers meeting in Luxembourg considered “technical revisions” to a July deal that foresaw investors contributing 50 billion euros ($67 billion) to a 159 billion- euro rescue. That “private sector involvement” includes debt swaps and rollovers.

Greek Aid

The ministers also pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year.

“Markets are taking a pause after very strong euro selling in the last two days,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “It’s not to suggest that the fundamental news has improved to push up the euro. Peripheral European concerns will continue to garner market attention.”

Bernanke’s remarks today in a testimony to Congress’ Joint Economic Committee signal he may not be finished after attempts in August and September to strengthen record monetary stimulus with unconventional tools. The central bank’s near-zero benchmark interest rate and $2.3 trillion of housing and government-debt purchases since 2008 have failed to produce self-sustaining growth in the economy and employment.

The Fed chief said China’s currency is significantly undervalued and its exchange-rate policies are impeding a global economic recovery. He said China’s yuan policy is “certainly a negative.”

The yuan has appreciated 5.2 percent against the U.S. dollar in the past year and 24 percent in the past five years, the steepest advance among 25 emerging-market currencies tracked by Bloomberg. China limits currency conversions for investment purposes and buys dollars to slow the yuan’s advance and preserve the competitiveness of China’s exports.

--With assistance from Anchalee Worrachate in London and Frederic Tomesco in Montreal. Editors: Paul Cox, Dave Liedtka

To contact the reporter on this story: Catarina Saraiva in New York at

To contact the editor responsible for this story: Dave Liedtka at

Too Cool for Crisis Management
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