SF: Euro Climbs for Second Day as Ireland's Crisis Seen Contained
Nov. 18 (Bloomberg) -- The euro advanced for a second day against the dollar and the yen on optimism a bailout for Ireland will prevent contagion across the region's larger debt markets.
The 16-nation currency rose from near a seven-week low versus the greenback as European Union and International Monetary Fund officials traveled to Dublin to discuss possible aid. Irish central bank Governor Patrick Honohan said he expects the country to ask for a "substantial" bailout from the EU and IMF to rescue its battered banks. The dollar and the yen weakened as stock markets gained. The South Korean won strengthened against all its 16 most-actively traded peers after a report showed department-store sales climbed.
"An announcement of a support package for Ireland could lead to a calmer period in the market, and that's supporting the euro," said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. "Risk sentiment has improved, and that's weakened the dollar to some extent."
The euro rose 0.9 percent to $1.3646 at 11:33 a.m. in London, after declining to $1.3448 on Nov. 16, the lowest level since Sept. 28. The single currency gained 0.8 percent to 113.41 yen. The dollar traded at 83.24 yen from 83.18 yen yesterday.
The euro strengthened against the pound for the third straight day, gaining 0.4 percent to 85.40 pence. Britain's pound rose 0.3 percent to $1.5961.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against a basket of six currencies, dropped for a second day before a report that economists said will show U.S. jobless claims rose last week. The Index fell 0.7 percent to 78.506. The MSCI World Index of shares rose for a second consecutive day, gaining 0.8 percent.
Honohan Remarks
Ireland's government will hold talks with the EU, IMF and the European Central Bank "over a number of days," a Finance Ministry spokesman said yesterday. Discussions will be held at the Irish central bank, the country's bond agency and the Finance Ministry.
The euro extended its gains after Honohan said he expects the country to ask for a bailout from the EU and the IMF worth "tens of billions" of euros.
Honohan is the first Irish official to publicly say that the nation will need aid. A final decision hasn't been reached, and Ireland will probably pay an interest rate close to 5 percent, he said in an interview with Irish broadcaster RTE.
The "large loan" will "show Ireland has sufficient firepower to deal with any concerns of the market," said Honohan. He spoke from Frankfurt, where he is attending a regular European Central Bank Governing Council meeting.
'Irish Problem'
"The Irish problem looks like it will be solved," said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world's largest interdealer broker. "The euro is managing to find some support."
European policy makers will scan the books of Ireland's debt-laden banks to determine whether the government can fix the banking system on its own or needs to fall back on the 750- billion-euro ($1 trillion) European Financial Stability Fund.
The euro has appreciated 0.6 percent over the past week according to Bloomberg Correlation-Weighted Indexes, a measure of 10 developed-nation currencies. The dollar is up 0.9 percent and the yen is down 0.2 percent, the indexes show.
Jobless Claims
The dollar declined against 15 of its 16 most-active counterparts before the Labor Department releases its weekly unemployment data today. The number of U.S. citizens filing initial jobless claims rose 6,000 to 441,000 last week, according to a Bloomberg survey.
The U.S. central bank risked a worsening outlook for inflation and jobs if it hadn't embarked on its new asset purchase plan, Boston Fed President Eric Rosengren said yesterday. Fed Governor Kevin Warsh, Minneapolis Fed President Narayana Kocherlakota, Cleveland Fed President Sandra Pianalto and Philadelphia Fed President Charles Plosser are all scheduled to speak today.
