BLBG: Euro Rises as Equities Rally, Signaling Risk Appetite Reviving
The euro rose against the dollar and approached its highest level against the yen this year as Asian stocks extended a global rally, spurring investors to buy higher-yielding assets.
The 16-nation currency gained for a fourth day versus the yen after Handelsblatt reported European Central Bank Executive Board member Juergen Stark said there was limited room for more interest-rate cuts. The yen fell for a sixth day versus the New Zealand dollar as the Group of 20 finance chiefs vowed on the weekend to clean up toxic assets that helped trigger the crisis.
“The backdrop of improving risk appetite is encouraging investors to trim ‘safe-haven’ currency bets,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This is likely to result in a generally weaker dollar and solid demand for yen crosses such as the kiwi-yen,” she said, referring to New Zealand’s dollar by its nickname.
The euro climbed to $1.3009 as of 1:14 p.m. in Tokyo, from $1.2968 late yesterday in New York, when it touched $1.3072, the strongest since Feb. 10. The euro gained 2.2 percent last week, the first weekly advance since early February.
The yen fell to 127.84 per euro from 127.32 yesterday, when it reached 128.73, the lowest level since Dec. 29. It traded at 98.32 per dollar from 98.18, and dropped to 52.24 versus the New Zealand currency from 52.02.
“The G-20 and other countries are likely to use all of the tools at their disposal to resolve the crisis,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “This should benefit the euro area the most, with the bias for the currency to strengthen” to the 100-day moving average of $1.3057 and to 128.40 yen today, he said.
Won Strengthens
South Korea’s won rose to a one-month high against the dollar on prospects a widening trade surplus will ease concern the nation’s banks may struggle to repay debt. The won climbed 2 percent to 1,411.90 per dollar, according to Seoul Money Brokerage Services Ltd. It rose as high as 1,395.90, the strongest since Feb. 12.
The euro rose past $1.30 yesterday for the first time since Feb. 10 after the G-20 finance ministers at a meeting during the weekend told the International Monetary Fund it will have its resources at least doubled to $500 billion.
“We have a little more room” to lower rates, Stark said in a preview of an article to be published in Handelsblatt today. “For me personally, the threshold isn’t far away from the current level,” he said.
Investors maintained bets the ECB will reduce borrowing costs at its next policy meeting on April 2. The yield on the three-month Euribor interest-rate futures due June traded at 1.47 percent from 1.54 percent a week ago, according to data compiled by Bloomberg.
Asian Stocks Rise
“The euro is getting a lot of support from comments by Stark who said there was limited room for further easing,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s biggest lender by market value.
European Commission President Jose Manuel Barroso and European Union Monetary Affairs Commissioner Joaquin Almunia will speak at 10 a.m. in Brussels today.
The dollar and the yen weakened against the euro as the Nikkei 225 Stock Average gained 1.6 percent and the MSCI Asia- Pacific Index of regional shares advanced 1.1 percent. Barclays Plc, the U.K.’s third-biggest lender, said yesterday it had a “strong start” to 2009. Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. all said last week they made money during the first two months of 2009.
Standard Chartered
Standard Chartered Plc, the U.K.’s second-largest bank by market value, had a “strong” first two months of the year, Chief Executive Officer Peter Sands said today in Hong Kong.
Implied volatility on one-month dollar-yen options fell to 18.45 percent from 18.52 percent yesterday, indicating reduced risk of exchange-rate fluctuations that can erode profit on so- called carry trades.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher rates. The risk is that market moves can erase those profits. Benchmark rates are 0.1 percent in Japan and as low as zero in the U.S., compared with 3 percent in New Zealand.
German Sentiment
Gains in the euro may be tempered before a German report today that economists say will show investor confidence declined for the first time in five months, suggesting the nation’s recession is deepening.
The euro may fall for a third day versus the pound as the ZEW Center for European Economic Research will say its index of investor and analyst expectations fell to minus 8 in March from minus 5.8 in February, a separate Bloomberg survey showed. ZEW releases the report, which aims to predict economic developments six months ahead, at 11 a.m. in Mannheim.
“Sentiment and current activity should deteriorate in the ZEW survey, perhaps more than expected,” said Greg Gibbs, director of foreign-exchange strategy in Sydney at Royal Bank of Scotland Group Plc. “This may undermine the euro.”
Europe’s single currency has weakened 3.8 percent against the pound this quarter, heading for its biggest quarterly loss in five years, as Germany’s economy is in its worst recession since World War II.
