BLBG: Euro Strengthens as Merkel Backs Currency, Trichet Proposes Finance Unit
The euro gained versus the dollar and yen as German Chancellor Angela Merkel said she is committed to the currency and European Central Bank officials backed the creation of a euro-region finance ministry.
The dollar remained weaker against the majority of its most-traded peers after initial claims for unemployment insurance were more than forecast last week. Europe’s single currency rose against 14 of its 16 major peers tracked by Bloomberg. The yen stayed lower as Japan’s Prime Minister Naoto Kan survived a no-confidence vote after offering to step down once his work to lead a recovery from March’s earthquake is accomplished.
“A lot of the comments we’ve seen from the euro zone are keeping the currency afloat,” said Kathy Lien, director of currency research with online currency trader GFT Forex in New York. “The jobless claims number is still at lofty levels and because of that the dollar remains under pressure.”
The euro rose 0.9 percent to $1.4453 as of 8:42 a.m. in New York from $1.4328 yesterday, when it reached $1.4459, the most since May 6. Europe’s common currency climbed 0.6 percent to 116.73 yen. The dollar fell 0.2 percent to 80.77 yen.
Price Stability
“Would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the union?” ECB President Jean-Claude Trichet said in a speech today in Aachen, Germany. He also favors giving the European Union powers to veto the budget measures of countries that go “harmfully astray,” though that would require a change to EU treaties. Yesterday he said the ECB “will continue to deliver price stability.”
The cost of living in the euro region increased 2.7 percent in May, a report showed on May 31. Inflation in the region has breached the ECB’s 2 percent limit since December and is forecast by its staff to average 2.3 percent this year.
The bank raised its key interest rate by 25 basis points to 1.25 percent in April, even as Portugal joined Greece and Ireland in requesting financial aid from the European Union and the International Monetary Fund. In comparison, the Federal Reserve and Bank of Japan are holding rates near zero.
No ‘Euro Problem’
“We don’t have a euro problem in Europe,” Merkel said in a speech in Singapore today on the final day of a three-day Asia trip that also took her to India. “We have more of a debt problem. Financial markets doubt whether some EU states can manage their debt in the long-term.” Germany is committed to the euro, which is stable, she said.
In Japan, the Diet’s lower house voted 293-152 against the no-confidence motion against Kan, as opposition lawmakers failed to attract enough support from his Democratic Party of Japan. Former DPJ premier Yukio Hatoyama called for party unity in rejecting the bill after Kan said he would step down once the disaster is contained.
Deepening discontent over the government’s handling of the March earthquake and tsunami that precipitated the worst nuclear disaster in 25 years prompted the measure.
Euro Performance
The euro has gained 2.5 percent this year, versus a 6 percent drop by the dollar and a 5.6 percent decline for the yen, according to Bloomberg Correlation-Weighted Currency Indexes.
Losses in the yen were trimmed as stocks extended a worldwide slump on concern over slowing U.S. growth. The MSCI Asia Pacific Index fell as much as 1.9 percent. The Stoxx Europe 600 Index fell 0.8 percent.
Bookings for manufacturers’ goods in the U.S. declined 1 percent in April, the most since October, the Commerce Department is forecast to say today, according to a Bloomberg News survey of economists.
Jobless claims fell by 6,000 to 422,000 in the week ended May 28, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg News projected a drop in claims to 417,000, according to the median forecast. The number of people on unemployment benefit rolls and those receiving extended payments decreased.
Jobs Data
The Labor Department will release May unemployment figures tomorrow. Goldman Sachs Group Inc. yesterday revised its estimate for an increase in May nonfarm payrolls to 100,000 from 150,000, while Citigroup Inc. trimmed its projection to 100,000 from 170,000. The median estimate in a Bloomberg News survey is for a gain of 170,000 following a 244,000 April increase.
“The focus for the market in general is going to be on the global growth situation,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The ability of risk assets like the euro to rally will be somewhat limited.”
New Zealand’s dollar slumped against the euro, the Australian dollar and the British pound on concern export revenue will be hurt by falling milk prices. Auckland-based Fonterra, the world’s largest dairy exporter, said near-term contracts for whole milk powder prices declined to the lowest since Jan. 18.
The so-called kiwi fell 0.9 percent against the euro to 1.7751. It rose to 81.53 U.S. cents from 81.46 cents yesterday.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net;
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
