Bloomberg News

Euro Pares Gain as Italian Vote Fails to Quell European Turmoil

November 09, 2011

Nov. 8 (Bloomberg) -- The euro pared its advance versus the dollar after Italian Prime Minister Silvio Berlusconi won a vote today in parliament on last year’s budget report without an absolute majority, fueling more calls for him to quit.

The yen gained to its strongest level against the dollar since Japan intervened Oct. 31 to stem its rise. The franc rose versus the euro as Swiss National Bank Vice President Thomas Jordan said the SNB is not weakening it to gain export advantage. Australia’s dollar fell against the greenback after the nation’s trade surplus shrank more than forecast.

“There is a deficit of trust toward the current policy makers in Italy on behalf of the markets,” said Vassili Serebriakov, a currency strategist in New York at Wells Fargo & Co.. “There is the view that the optimal way right now is a technocrat-led government that’s not sensitive to electorate pressures. A negative vote would have been good for the euro.”

The euro gained less than 0.1 percent to $1.3786 at 11:55 a.m. New York time, after rising earlier to as high as $1.3844. It declined 0.3 percent to 107.22 yen. The Japanese currency rose 0.4 percent to 77.78 per dollar and touched 77.60.

The yen reached a post-World War II high of 75.35 on Oct. 31, threatening exporters, and the Bank of Japan sold the currency to weaken it.

The franc appreciated 0.4 percent to 1.2359 per euro and gained 0.4 percent to 89.65 centimes per dollar.

Italian Vote

Italy’s 630-seat Chamber of Deputies approved the routine budget report today with 308 votes, Speaker Gianfranco Fini said in Rome. Berlusconi’s failure to muster an absolute majority spurred further calls for his resignation as Italy struggles to convince investors it can fund itself.

The chamber had failed to pass the report in an initial ballot last month, prompting a confidence motion won by Berlusconi on Oct. 14 with 316 votes. Since then he has faced defections that reduced his majority.

“Even in the best-case scenarios that there are, we are still going to be driving along the side of a cliff for the euro zone,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “When we veer slightly away from the cliff, there is this sense of relief just because there’s so much short-euro positioning out there already.” A short position is a bet a currency will weaken.

Wagers by hedge funds and other large speculators on a drop in the euro fell to 60,060 on Nov. 1, compared with net shorts of 76,512 a week earlier, according to figures from the Washington-based Commodity Futures Trading Commission.

Talks in Greece

In Greece, Prime Minister George Papandreou resumed talks with his opposition rival in Athens as they moved closer to agreement on naming the premier of a Greek unity government. Papandreou said a Greek national unity government will be named “soon” and told his ministers to get ready to resign, spokesman Elias Mosialos said today in Athens.

The euro gained 0.7 percent in the past month against nine developed nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar fell 3 percent and the yen tumbled 6 percent.

Japan, the second-largest foreign lender to the U.S., may boost its Treasuries holdings to an all-time high after selling yen and buying dollars Oct. 31 to weaken its currency. The U.S. Treasury Department is scheduled to auction $32 billion of three-year debt today and sell another $40 billion of notes and bonds later this week.

Japan Holdings Surged

Japanese holdings of Treasuries surged after the previous three interventions starting in September 2010. After its record 4.51 trillion in yen sales Aug. 4, the holdings rose 2.4 percent to $936.6 billion in August, according to U.S. Treasury Department data.

The franc depreciated after the SNB’s Jordan said the franc “must” weaken further. It reversed declines after he said the central bank will not pursue a competitive devaluation policy.

The central bank imposed a ceiling of 1.20 francs per euro in September amid signs that the currency’s gains had started to damp economic growth.

“The SNB has been credible in maintaining the euro-franc floor,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The SNB’s Thomas Jordan reiterated that the floor-setting was not a move to competitively devalue their currency, but rather to stem market dislocations and extreme currency overvaluation.”

Australia’s dollar weakened after statistics bureau data showed exports exceeded imports by A$2.56 billion ($2.64 billion), compared with a revised A$2.95 billion surplus in August. The median estimate in a Bloomberg News survey of economists was for a surplus of A$3 billion.

The currency fell 0.5 percent to $1.0332 and dropped 0.8 percent to 80.33 yen.

--Editors: Greg Storey, Paul Cox

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

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


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