The euro rose from its lowest level against the dollar in more than two years amid speculation global central banks will take more action to sustain faltering economic growth.
The shared currency pared a third weekly loss versus the yen. The European Central Bank is set to ease monetary policy, including cutting its deposit rate further, if Europe’s debt crisis worsens, according to a Medley Global Advisors report Bloomberg News obtained. Italian borrowing costs fell at a sale even after Moody’s Investors Service downgraded Italy. Slowing growth in China fueled bets stimulus there will be boosted.
“The Italian auction coming on the heels of that sharp downgrade from Moody’s fared reasonably well, which sowed the seeds for a rebound in the single currency,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU:US), said in a telephone interview. “If you throw in the data out of China, which wasn’t as bad as some investors had feared, that contributed to a snowballing relief rally for risk assets.”
The euro rose 0.4 percent to $1.2249 at 5 p.m. in New York, gaining for the first time in four days and trimming its weekly loss to 0.3 percent. It fell earlier as much as 0.3 percent to $1.2163, the weakest since June 2010. The 17-nation currency gained 0.2 percent to 96.98 yen, paring a five-day loss to 0.9 percent. The yen rose 0.2 percent to 79.18 per dollar.
Europe’s common currency climbed just after it exceeded yesterday’s low of $1.2167.
“It’s very common for currencies to make fresh year-to- date lows and then bounce back on short covering,” Boris Schlossberg, New York-based managing director of foreign exchange at the investment advisory firm BK Asset Management, said in a telephone interview. Short covering is when investors end bets an asset will decline.
The billionaire investor Warren Buffett, chairman of Berkshire Hathaway Inc. (A:US), said the euro is destined for failure and must be reworked if it is to remain alive.
“It can’t survive with the present rules,” Buffett said today on Bloomberg Television’s “In the Loop With Betty Liu” in an interview from the Allen & Co. media conference in Sun Valley, Idaho. “That’s what they’re learning. The question is, can 17 countries get together in a way to essentially re-do something.”
Euro weakness will continue through the end of the year, with the shared currency depreciating to $1.15, Chris Walker, a London-based currency strategist at UBS AG in London, wrote in a note today.
“Relative balance-sheet dynamics and reserve recycling have led to significant euro underperformance, not just versus the dollar but versus euro-crosses as well,” Walker wrote.
Moody’s lowered Italy’s government-bond rating by two levels to Baa2 and said further downgrading was possible, according to a statement issued today in Frankfurt. That’s two steps above junk, one above Spain. Italy still sold 3.5 billion euros ($4.27 billion) of three-year notes today priced to yield 4.65 percent, down from 5.3 percent at a previous auction.
The pound advanced to the strongest level since November 2008 against the euro as investors bet an attempt to ease U.K. credit conditions will help spur Britain’s economy.
The Bank of England released details today of a new lending program, which it said may boost credit to companies and households by at least 80 billion pounds ($124 billion).
The pound gained as much as 0.7 percent to 78.57 pence per euro before trading at 78.65 pence, up 0.6 percent. It strengthened 1 percent to $1.5575.
The greenback fell against all of its 16 most-traded counterparts tracked by Bloomberg except Sweden’s krona.
Currencies of commodity-exporting nations including Australia and New Zealand rose against the dollar and yen as data showed China’s gross domestic product grew 7.6 percent in the second quarter. The figure compared with the 7.7 percent forecast in a Bloomberg News survey and 8.1 percent in the previous period.
The Aussie appreciated 0.9 percent to $1.0226, and New Zealand’s dollar rose 0.8 percent to 79.59 U.S. cents. China is Australia’s biggest trade partner and New Zealand’s second- largest export destination.
“It’s a result of stimulus hopes on the Chinese data and the resulting rally we’ve seen for commodity prices,” Western Union’s Manimbo said.
New Zealand’s dollar gained 3.4 percent in the past month and Australia’s dollar rose 3.3 percent, the best performances among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro and the Swiss franc slid the most, 2.7 percent, while the dollar gained 0.1 percent.
The Standard & Poor’s GSCI Spot Index of 24 raw materials climbed 1 percent. Stocks also gained, with the S&P 500 Index snapping a six-day losing streak and rising 1.7 percent.
Mexico’s peso advanced from yesterday’s two-week low as crude oil gained, boosting the outlook for the country’s second- biggest export. The currency rose against all of its major peers, appreciating 1.3 percent to 13.2904 per dollar. Crude for August delivery rose 1.1 percent to $87 a barrel in New York.
The peso’s risk-adjusted gain of 0.40 percent against the dollar this year was the fourth-largest among major currencies, the Bloomberg Riskless Ranking showed. The euro was the worst performer, losing 0.61 percent.
The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.
People’s Bank of China policy makers cut benchmark interest rates last week for the second time in a month to spur growth. The ECB lowered its benchmark rate to a record 0.75 percent and reduced its deposit rate to zero, and the Bank of England expanded its asset-purchase stimulus program by 50 billion pounds ($78 billion) to 375 billion pounds.
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