Oct. 15 (Bloomberg) -- The euro rallied the most against the dollar in more than two years on speculation the currency union’s political leaders will be able to resolve the region’s sovereign debt crisis.
The 17-nation euro rose yesterday to a five-week high versus the yen as Group of 20 finance ministers convened in Paris. The yen fell this week against all of its most-traded peers on bets Japanese authorities will take steps to limit its gains next week. Commodity currencies led by the Australian dollar rallied versus the greenback on signs of stronger global growth including an increase in U.S. retail sales.
“Markets are feeling more positive about the European leaders coming up with a comprehensive solution,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The numbers still point to ongoing growth in the global economy and most importantly the U.S. It looks like a classic return of risk appetite.”
The euro rose 3.8 percent to $1.3882 yesterday in the biggest gain since the week ended March 20, 2009. The shared currency advanced 4.4 percent to 107.20 yen after touching 107.45, the highest level since Sept. 9. The yen dropped 0.6 percent to 77.22 per dollar.
The MSCI World index of stocks surged 5.4 percent this week while the Thomson Reuters/Jefferies CRB Index of raw materials rose 4.5 percent.
Australia’s dollar advanced 5.9 percent to $1.0340 in the biggest five-day advance since February 2009. The Aussie rose for a second straight week after losing 9.8 percent in September. Norway’s krone rallied 4.6 percent to 5.5627 per greenback. Canada’s dollar strengthened 2.9 percent to C$1.0098 per U.S. dollar after dropping as much as 1 percent on Oct. 13.
“Risk aversion has come in lower,” said Camilla Sutton, chief currency strategist in Toronto at Bank of Nova Scotia. “Markets feel a lot calmer than they felt even a week ago.”
The yen slid after an improved economic outlook damped refuge demand and as Dow Jones Newswires reported government officials said they would take steps against a strong yen as early as next week. The steps may include more funding to encourage foreign mergers and acquisitions and won’t include a tax on currency transactions, Dow Jones reported.
“This is a very direct response to people not wanting to be too long yen going into the weekend in case there’s some real meat in the talk of action early next week,” said Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York. A long is a bet an asset may gain in value.
The yen increased to a post-World War II high of 75.95 against the dollar in August, making Japan’s exports more expensive, even after the government intervened in the currency market for the third time in the past year, selling yen in an effort to curb its appreciation.
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, decreased 2.7 percent to 76.612 in the biggest weekly slump since May 2009 on reduced demand for a refuge in the world’s main reserve currency.
U.S. retail sales increased 1.1 percent last month, the most since February, after a revised 0.3 percent gain in August, the Commerce Department reported yesterday.
“This report is a game changer,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $26 trillion in assets under administration.
Minutes from the Fed’s Sept. 20-21 meeting released this week showed some policy makers saw “considerable uncertainty” that U.S. economic growth will pick up. The Federal Open Market Committee decided to replace $400 billion of shorter-term Treasuries in the central bank’s portfolio with longer maturities to keep borrowing costs low under the policy known as Operation Twist.
Hedge funds and other large speculators increased bets that the dollar will gain against the yen, euro, Australian dollar, Swiss franc, Canadian dollar, pound, Mexican peso and New Zealand dollar. Net dollar long positions increased to 132,835 contracts in the week ended Oct. 11, figures from the Commodity Futures Trading Commission showed yesterday. That’s the highest level since June 2010.
The euro rose this week as G-20 and International Monetary Fund officials said the finance ministers meeting in Paris are working on a European rescue plan including boosting the IMF’s lending resources.
European leaders may complete the rescue plan at an Oct. 23 summit to present to a meeting of G-20 leaders on Nov. 3-4. The aim is to put together what the French and German governments call a “durable” fix to the turmoil that has propelled Greece to the edge of default and is roiling global markets.
The euro has strengthened 1.1 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which gauge the currencies of 10 developed nations. The yen has fallen 0.8 percent.
--Editors: Dennis Fitzgerald, Paul Cox
To contact the reporters on this story: Catarina Saraiva in New York at firstname.lastname@example.org; Allison Bennett in New York at email@example.com
To contact the editor responsible for this story: Robert Burgess at firstname.lastname@example.org