The euro rose against the dollar, snapping its biggest two-day drop since 2008, on prospects the region’s debt crisis won’t keep the European Central Bank from increasing interest rates. The common currency gained versus most major peers after European Union officials agreed in an unannounced meeting on May 6 to reconsider the terms of the 110 billion-euro ($158 billion) lifeline Greece received last year, showing their determination to hold the euro region together. The yen fell against the euro amid speculation traders took advantage of the Japanese currency’s gain to an almost six-week high to sell it. “That we still have a Fed policy that implies low interest rates for quite a prolonged period of time means that the rate differential still works in favor of the euro,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “As long as people believe that the ECB can continue its interest-rate policy despite the euro-zone debt crisis, this will be an ongoing trend with spikes to the downside again and again as we see bad news like that on Friday.” The euro strengthened 0.6 percent to $1.4405 as of 8:02 a.m. in London. It touched $1.4311 on May 6, the lowest since April 19. The 17-member shared currency rose 0.8 percent to 116.19 yen, after falling to 114.99 in early trading, the weakest since March 29. The yen was little changed at 80.62 per dollar. It reached 79.57 versus the greenback on May 5, the strongest since March 18, when Group of Seven central banks intervened to stem the yen’s gain after a record earthquake struck Japan. Expanding Lifeline Expanding the 110 billion-euro lifeline Greece received last year may mean that assets or revenue from asset sales are used to secure extra funds, a person with direct knowledge of the situation said. Demanding collateral, an idea floated last year by Finland, may help avoid a political backlash against bailouts. Swaps traders are betting the ECB will raise its target rate by 79 basis points over the next 12 months, a Credit Suisse Group AG index showed on May 6. Another index forecasts 28 basis points of tightening by the Federal Reserve for the same period. The euro has risen 3 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has weakened 4.4 percent, while the dollar is down 5.1 percent. ‘Cheap Levels’ “Individual margin traders appear to be entering the market at cheap levels” to buy other currencies versus the yen, said Tsunemasa Tsukada, chief manager for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest financial group by market value. “Commodities also are trading with a firm tone.” Oil climbed today, rebounding from the biggest weekly loss since 2008, after data showed the U.S. added more jobs in April than economists had forecast. Crude for June delivery rose 1.5 percent to $98.70 a barrel in electronic trading on the New York Mercantile Exchange. The Australian dollar rose for a second day before data tomorrow forecast to show China’s imports increased in April. China’s customs bureau will say imports climbed 28.9 percent in April from a year earlier, after gaining 27.3 percent the previous month, according to a Bloomberg News survey. Exports rose 29.5 percent and the trade surplus widened to $3.2 billion, the economists predicted. Search for Commodities Australia’s dollar climbed to $1.0764 from $1.07. The so- called Aussie advanced to $1.1012 on May 2, the strongest level since foreign-exchange controls were scrapped in 1983. It gained 0.6 percent to 86.78 yen. “We don’t seem to be getting a huge amount of reaction to anything that will result in tightening from the People’s Bank of China, so it’s really just trying to gauge whether the search for commodities is going to continue,” said Thomas Averill, a director in Sydney at Rochford Capital, a foreign-exchange risk management company. “The Aussie will likely go back beyond $1.10 in the not too distant future.” China is the largest importer of Australia’s raw materials. The dollar slipped before U.S. reports this week that may show fewer initial jobless claims and increased retail sales, providing evidence the recovery of the world’s largest economy is maintaining momentum. Applications for unemployment benefits declined by 46,000 to 428,000 last week, and sales at U.S. retailers climbed 0.6 percent in April, according to Bloomberg News surveys of economists before the May 12 data. Payrolls grew by 244,000 last month, the seventh monthly gain, after increasing a revised 221,000 the prior month, the Labor Department reported on May 6. “America’s economy is recovering, albeit at a gradual pace,” said Yuji Saito, a director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “This is a positive for the dollar.” The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, declined 0.4 percent to 74.564 after rising to 74.925 on May 6, the strongest since April 20. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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