BLBG: Euro Gains Versus Most Major Peers on Stocks, Prospects for Irish Bailout
The euro rose against most of its major counterparts as North American stocks erased losses and investors speculated Ireland will get a bailout.
The dollar fell against most currencies after advancing earlier as the latest move by China to curb inflation damped investors’ risk appetite, pushing down stocks, raw materials and commodity-linked currencies such as the Australian dollar and Brazilian real.
“Those that were exiting the euro out of fear that Ireland would tip off a domino effect with contagion spreading to Portugal and perhaps Spain, a lot of those concerns now have been shelved for the time being,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “That’s giving the euro a bit of a bounce as we’re closing out the week.”
The euro gained 0.3 percent to $1.3678 at 4:37 p.m. in New York, from $1.3643 yesterday, and rose 0.2 percent to 114.13 yen. The shared currency touched 114.32 yen, the highest level since Nov. 5. The yen traded at 83.44 per dollar, up 0.1% from 83.52 yen yesterday.
The shared currency’s gains today erased a weekly loss against the dollar. The euro closed on Nov. 12 at $1.3691.
U.S. stocks reversed losses in a late surge as a dividend increase at Nike Inc. overshadowed concern sparked by China that global growth would slow. The Standard & Poor’s 500 Index ended the day up 0.3 percent after falling as much as 0.6 percent.
Limiting Inflation
China ordered banks to set aside larger reserves for the fifth time this year, draining cash from the financial system to limit inflation. The ratio will increase 50 basis points, or 0.50 percentage point, starting Nov. 29, the central bank said on its website today. The aim is to step up liquidity management and “appropriately control” credit and loans, it said.
“China appears to be using all available tools,” strategists at BNP Paribas SA led by Hans-Guenter Redeker in London wrote to clients today. “Friday’s reserve-requirement hike is just part of China’s ongoing efforts to try and cool inflationary pressures.”
Australia’s currency fell against all of its major counterparts. China is the country’s biggest trading partner. The Aussie weakened 0.4 percent to 98.62 U.S. cents, from 98.99 cents yesterday, and fell 0.5 percent to 82.28 yen, from 82.68.
Real, Rand
Currencies of other commodities exporters, including Brazil and South Africa, fell as the Reuters-Jefferies CRB Index of raw materials tumbled 1.2 percent.
The dollar gained 0.2 percent to 1.7156 Brazilian reais and appreciated 0.2 percent versus South Africa’s rand to 6.9902.
Officials of the European Union, International Monetary Fund and European Central Bank yesterday started studying the Irish financial firms’ books.
Ireland’s central bank governor, Patrick Honohan, said yesterday he expected the nation would seek a package worth “tens of billions” of euros a to help the nation’s banks, which were battered by the its property slump.
Brian Lenihan, Ireland’s finance minister, is due to publish details of a four-year, 15 billion-euro ($20 billion) plan to lower the budget deficit this month and his 2011 budget on Dec. 7.
The euro may rise versus the dollar as Europe’s sovereign debt crisis subsides and investors focus on U.S. Treasury yields amid the Federal Reserve’s purchases of bonds in a quantitative- easing program to spur employment and avert deflation, according to Deutsche Bank AG.
Yields ‘Main Driver’
“We find that U.S. real yields, rather than euro-area sovereign woes, have been the main driver of the dollar,” a team led by Bilal Hafeez , global head of foreign-exchange strategy in London, wrote in an e-mailed report today. Real yields are what investors get after accounting for inflation.
Treasury notes fell this week, elevating yields on the benchmark 10-year security to as much as 2.96 percent, the highest level in three months.
Fed Chairman Ben S. Bernanke defended the U.S. central bank’s plan to purchase $600 billion in government debt through June, saying in a speech in Frankfurt it will aid the economy.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
