The euro strengthened against the dollar after the European Central Bank eased terms for collateral, boosting speculation the central bank will announce a third set of long-term loans.
The 17-nation currency gains were limited amid reports investors to take losses in a Spanish debt restructuring and German Chancellor Angela Merkel said direct bailout funding to banks violates the region’s treaties. The yen weakened as Japanese lawmakers in the lower house prepared to vote on a bill to double sales tax. Risk-sensitive currencies such as New Zealand’s dollar and Mexico’s peso rallied as stocks and commodities rebounded.
“The move by the ECB can help ease some of the funding issues for Spain,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US) “The euro is finding a little bit of footing with markets really turning to next week’s EU summit.”
The euro gained 0.2 percent to $1.2570 at 5 p.m. New York time, after adding as much as 0.4 percent. The U.S. currency was 0.2 percent higher against the yen at 80.43, after appreciating to 80.57, the strongest level since May 2. The yen lost 0.4 percent to 101.10 per euro.
The Standard & Poor’s 500 Index rose 0.7 percent and the Standard & Poor’s GSCI Index of 24 raw materials increased 0.8 percent. Crude oil futures rallied 2.5 percent.
Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 141,066 contracts on June 19, compared with net shorts of 195,187 a week earlier. They reached a record of 214,418 the week ended June 5.
Canada’s dollar added 0.5 percent to C$1.0246 after touching C$1.0300, its lowest in a week as a rally in crude oil outweighed a report showing inflation advanced at the slowest pace in two years.
New Zealand’s dollar was the best performer against the dollar, gaining 0.5 percent to 79.06 U.S. cents. Mexico’s peso, added 0.4 percent to 13.8624.
“Financials are rebounding quite strongly, so the market may be set for a reprieve,” said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York. “It’s quite clear that fiscal and banking unions are needed in Europe but what’s needed right now is a timeline.”
The euro retreated as Merkel, speaking to reporters in Rome today at crisis talks before a June 28-29 summit, said Spain is responsible for its own banks and that direct bailout funding of banks violates treaties.
Spanish policy makers considered forcing investors who hold equity and junior debt in banks to absorb losses in a restructuring, according to a person with knowledge of the plan.
“The market sees this as a signal that there is another longer-term refinancing operation coming,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “They are targeting the same banks as they did in the first instance, in a sense the LTROs were limited only by the collateral that peripheral banks could bring to the ECB to get the money.”
The shared currency is down from this year’s high of $1.3487 on Feb. 24 and has depreciated about 6.6 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that measure 10 developed-market currencies.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.1 percent to 82.212 after touching 82.465, the strongest level since June 13.
The dollar climbed above 80 yen yesterday for the first time in a month. Prime Minister Yoshihiko Noda’s Democratic Party struggled to overcome internal resistance to his bill to double Japan’s consumption tax before a lower-house vote that may come as soon as today.
The dollar’s rise versus the yen may stall, according to data compiled by Bloomberg. The greenback faces so-called resistance at the 100-day moving average of 80.41 yen, and may find support at 79.84, the 50-day moving average, the data show.
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