Bloomberg News

Euro Trades Near 4-Week High on Recapitalization Plan; Yen Gains

October 13, 2011

Oct. 13 (Bloomberg) -- The euro was 0.3 percent from an almost four-week high before European Commission President Jose Barroso speaks in Brussels after calling yesterday for a “coordinated approach” to recapitalize the region’s banks.

Demand for the euro was bolstered as Slovakia is set to approve Europe’s enhanced bailout fund today or tomorrow, completing the ratification process across the 17 euro countries. Australia’s dollar gained after a report showed the nation’s jobless rate fell. The yen rallied from its weakest level in a month against the dollar on speculation Japan’s exporters bought their currency. China’s yuan weakened following data that showed slowing export growth.

“There’s certainly mounting optimism there is a greater urgency from policy makers to bolster the European financial system by things like the recapitalization of the banking system,” said John Horner, a currency strategist at Deutsche Bank AG in Sydney. “That should help support euro.”

The euro rose 0.1 percent to $1.3799 as of 6:25 a.m. London time from the close in New York yesterday, when it touched $1.3834, the strongest since Sept. 16. The currency traded at 106.39 yen from 106.56 yesterday, when it reached 107.05 yen, the most since Sept. 9.

The dollar lost 0.2 percent to 77.10 yen after touching 77.49 yesterday, the most since Sept. 12.

Looming Deadline

Barroso yesterday called for a reinforcement of crisis-hit banks, the payout of a sixth loan to Greece and a faster start for a permanent rescue fund to stem Europe’s debt crisis. An Oct. 23 summit of euro leaders looms as a deadline for a breakthrough in combating the crisis.

Currencies such as the Australian and New Zealand dollars may appreciate more than the euro until greater detail emerges on how Europe will implement any plan to insulate its banks from the region’s debt woes, Deutsche Bank’s Horner said.

The U.S. will intensify its call for forceful action from Europe at a meeting of Group of 20 nations in Paris this week, Lael Brainard, the Treasury undersecretary for international affairs, said yesterday. Treasury Secretary Timothy F. Geithner will attend the G-20 finance ministers meeting beginning today.

The euro has climbed 1.8 percent over the past month, the best performer after the Swedish krona among 10 developed market currencies tracked by Bloomberg Correlation-Weighted Indexes.

Peg Speculation

The yen advanced against 10 of its 16 major counterparts, rebounding from declines against the dollar and euro yesterday.

“There’s talk of exporters buying the yen,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “Their purchases are probably related to the Japanese currency’s weakness versus the dollar and the euro.”

The yen reached its weakest level in a month against its U.S. and European counterparts yesterday as talk of a yen peg to the dollar weakened the currency, according to Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. Today’s move “is people taking profit,” he said.

Japan on Aug. 4 sold the yen to stem its advance. The Swiss National Bank on Sept. 6 set a minimum exchange rate of 1.20 francs per euro and said it will defend the target with the “utmost determination” if needed.

Japan’s central bank also bolstered in August an asset- buying fund to 15 trillion yen ($195 billion) from 10 trillion yen, while leaving its target interest rate near zero percent. The Bank of Japan’s members “shared the view that it was appropriate for the time being to steadily implement the purchase of financial assets and monitor the spread of its effects,” according to a record of the bank’s Sept. 6-7 meeting published today.

Australian Jobs

Australia’s dollar gained for a second day against the U.S. currency after the statistics bureau in Sydney said the number of people employed rose by 20,400, compared with a revised drop of 10,500 in August. That was more than twice the median estimate in a Bloomberg News survey of economists. The so-called Aussie rose 0.4 percent to $1.0198.

China’s yuan fell 0.3 percent to 6.3779 per dollar after government data showed exports rose in September at the slowest pace in seven months and the trade surplus shrank. The People’s Bank of China weakened its daily reference rate 0.22 percent to 6.3737, the biggest decline since November last year. The currency is allowed to fluctuate a maximum 0.5 percent on either side of the fixing.

“China may slow the pace of yuan gains as exports show more significant slowdown,” said Edmond Law, deputy head of foreign-exchange at BWC Capital Markets in Hong Kong. “Exports remain an important engine for China’s growth.”

--With assistance by Ron Harui in Singapore. Editors: Rocky Swift, Benjamin Purvis

To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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