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The euro strengthened to a one-month high against the dollar after Spain kept its investment-grade credit rating from Moody’s Investors Service before European leaders gather tomorrow for a two-day summit in Brussels.
The yen fell to its lowest level against the dollar in almost a month after a Nikkei report said the Bank of Japan (8301) will face pressure to boost monetary stimulus at its next meeting ending Oct. 30. The dollar weakened versus all of its major peers as U.S. housing starts rose to a four-year high last month, damping demand for safer assets. The 17-nation euro appreciated for a fifth day versus the yen as Spanish and Italian bonds rallied.
“What helped spark this latest move is the fact that Moody’s didn’t cut Spain below investment grade,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a telephone interview. “The big risk-on move today took place because of Spain.”
The euro gained 0.5 percent to $1.3119 at 5 p.m. New York time, after reaching $1.3140, the highest level since Sept. 17. The common currency advanced 0.6 percent to 103.56 yen. The yen declined 0.1 percent to 78.93 per U.S. dollar, after strengthening as much as 0.3 percent.
The shared currency may appreciate to its highest level in nearly eight months after breaking out above $1.3074, Cilline Bain, a London-based technical analyst at Credit Suisse Group AG, wrote today in a client note. If the euro can exceed the $1.3172-to-$1.3178 resistance zone, it could rise to $1.3388, the highest point since Feb. 29, Bain wrote. Resistance refers to an area on a chart where sell orders may be gathered.
The Argentine peso fell versus all 31 of its expanded-major counterparts tracked by Bloomberg to its lowest-ever point versus the greenback. The currency decreased as much as 0.4 percent to 4.7314 per dollar.
Poland’s zloty reached to a two-week low after the country’s industrial output contracted the most in more than three years. The currency increased 0.1 percent to 3.1245 per dollar after earlier falling 0.4 percent, its lowest level since Oct. 5.
The New Zealand dollar climbed to its highest level in one month as speculation Spain is closer to requesting a sovereign bailout eased concern Europe’s debt crisis was widening and spurred appetite for riskier assets.
The so-called kiwi gained 1 percent to 82.19 U.S. cents, after dropping 0.5 percent to 81.41 yesterday.
Australia’s currency appreciated to a two-week high versus the greenback as investors sought higher-yielding assets.
The so-called Aussie rose 1.1 percent to $1.0383, touching the strongest level since Oct. 1.
The pound climbed to a one-week high against the dollar after the Office for National Statistics said jobless-benefit claims fell 4,000 in September to 1.57 million. The unemployment rate measured by International Labor Organization methods declined to 7.9 percent between June and August.
Sterling gained 0.2 percent to $1.6149 after rising to $1.6178, the highest since Oct. 5.
Gains in the pound were tempered after minutes of the Bank of England’s Oct. 3-4 meeting released today showed that some policy makers felt there was “considerable scope” for more asset purchases to boost the economy.
Moody’s said yesterday it kept Spain’s credit rating at Baa3, one step above junk, as the risk that the nation would lose market access had fallen because of the European Central Bank’s willingness to purchase its bonds.
Spain’s 10-year bond yield fell as much as 34 basis points to 5.46 percent, the lowest since April 4, while Italian 10-year yields declined to the least since March 19. Benchmark Spanish borrowing costs have dropped more than 2 percentage points from their record high of 7.75 percent on July 25.
European Union leaders start a two-day summit in Brussels tomorrow, where they may seek agreement on more help for Greece.
Options traders are the least bearish on the euro versus the dollar in more than two years.
The premium for six-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 1.15 percentage points, the least since Oct. 15, 2010, based on closing prices compiled by Bloomberg. That’s down from a 2012 high of 3.715 percentage points on May 23, the 25- delta risk reversal rate show.
Risk reversals measure the difference between implied volatility, or a gauge of price and demand, on similar puts and calls. Traders pay a premium for puts when they expect the euro to decline.
“There has been talk about renewed appetite on behalf of Spain to take advantage of the next financial bailout package,” Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. (BK), said in a telephone interview.
The Dollar Index (DXY) dropped for a second day as housing starts jumped 15 percent to an 872,000 annual rate last month, the most since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. The median estimate of 81 economists surveyed by Bloomberg called for 770,000.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.5 percent to 79.026, touching the lowest level since Sept. 18.
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