Bloomberg News

Euro Rises as German Court Says Bailout Ruling on Course

September 11, 2012

The euro rose to the highest in almost four months against the dollar after Germany’s top constitutional court said it won’t delay a ruling on the country’s role in the currency bloc’s permanent bailout fund.

The Dollar Index fell to the lowest since May before the Federal Reserve starts a two-day meeting tomorrow amid speculation it will buy bonds to boost the economy in a third round of so-called quantitative easing. The Federal Constitutional Court is due to decide tomorrow on Germany’s participation in the European Stability Mechanism, a 500 billion-euro ($639 billion) fund that offers loans to member states and may buy their bonds to lower borrowing costs.

The German court said its decision “won’t be delayed, in response to some reports saying to could be,” said Jane Foley, a senior currency strategist at Rabobank International in London. “If the euro can rally on that news then the market is still in a euphoric mood.”

The 17-nation shared currency gained 0.3 percent to $1.2791 at 9:18 a.m. London time. It earlier touched $1.2819, the highest since May 22. The 17-nation shared currency advanced 0.2 percent to 100.03 yen. The greenback slipped 0.1 percent versus the Japanese currency to 78.23 yen.

A plaintiff in the ESM case had asked for a delay after the European Central Bank pledged unlimited funds to buy government bonds. The bid won’t change the ruling date, the court said in an e-mailed statement today.

Court Approval

“The market is anticipating the German Constitutional Court will approve the ESM,” said Yoshitsugu Fujita, assistant vice-president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “If it actually passes” the euro will be bought, he said.

The U.S. currency declined against all but one of its 16 major peers before Fed policy makers gather. They will keep their key interest rate at 0.25 percent, according to 54 economists surveyed by Bloomberg before the announcement on Sept. 13.

“The dollar will remain heavy if the consensus now is that we’ll all see an expansion of its balance sheet” by the Fed, Chris Weston, an institutional dealer at IG Markets in Melbourne, said in an interview on Bloomberg Television. “I would be looking to sell any kind of big rallies in the dollar.”

The Dollar Index, which IntercontinentalExchange Inc. (ICE:US) uses to track the greenback against the currencies of six U.S. trading partners, declined 0.3 percent to 80.190 after touching 80.122, the lowest since May 11.

Week’s Decline

The greenback has lost 1.2 percent in the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 0.8 percent, the second-biggest advancer.

The implied volatility of three-month options for Group of Seven currencies touched 7.81 percent, the lowest since October 2007, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.

The shared currency may strengthen to a four-month high against the dollar, UBS Ltd. said, citing trading patterns.

The euro may rise to $1.2935, the 61.8 percent retracement from its decline from the Feb. 24 high to the July 24 low on the Fibonacci chart, Richard Adcock, head of fixed-income technical strategy in London, wrote in an e-mailed note to clients today. That would be the highest since May 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net


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