The euro rose to three-week highs against the dollar and yen before European Commission President Jose Barroso presents proposals on recapitalizing banks after Germany and France pledged to draw up a plan by early November. The dollar and the yen slumped against higher-yielding currencies such as the Australian and New Zealand dollars as stock gains sapped demand for safer investments. The euro extended its advance after European industrial production unexpectedly rose in August, and the European Union and International Monetary Fund officials indicated Greece will get an 8 billion-euro ($11 billion) loan next month. “The market is quite a lot more risk-on today, with equities higher, and that’s reflected in the euro’s performance,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. “With talk of recapitalization plans for the banks, we’ve got more certainty today than we had a week ago.” The euro strengthened 1.2 percent to $1.3806 at 6:10 a.m. New York time, after rising to $1.3810, the strongest level since Sept. 16. The 17-nation currency gained 1.2 percent to 105.78 yen after reaching 105.82 yen, the most since Sept. 19. The dollar was little changed at 76.59 yen. The Dollar Index, which tracks the U.S. currency against those of six major U.S. trading partners, slid 1 percent to 76.850. It dropped to 76.816, the lowest since Sept. 21. Barroso Speech Barroso will today unveil proposals on coordinating bank recapitalizations across the EU, on Greece and private-sector participation in its bailout, and on the region’s rescue funds, according to a person who declined to be named because the proposals aren’t yet public. Barroso will announce the proposals in a speech to the European Parliament at 3 p.m. in Brussels, the person said. Greek Finance Minister Evangelos Venizelos said the government will meet commitments to international creditors to deepen pension and wage cuts, promising parliamentary approval for the draft 2012 budget, which was passed at the finance committee level yesterday. “There’s been some short-covering in the euro over the past week,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. That’s “driven by the hope that European authorities have finally woken up to the true extent of the crisis, which could result in more effective measures being put in place.” Production Rises The euro extended gains after the European Union’s statistics office said industrial production in the euro area advanced 1.2 percent from July, the biggest increase since November 2010. Economists surveyed by Bloomberg forecast a drop of 0.8 percent. The Stoxx Europe 600 Index and Standard & Poor’s 500 Index futures expiring in December both climbed 1.1 percent. Australia’s dollar surged 1.8 percent to $1.0130 U.S. cents, and gained 1.7 percent to 77.58 yen. New Zealand’s dollar strengthened 2 percent to 79.54 U.S. cents, and appreciated 1.9 percent to 60.93 yen. The euro’s advance was tempered as political turmoil in Slovakia delayed its approval of Europe’s enhanced bailout fund. Prime Minister Iveta Radicova wants to start talks today with the opposition on a second vote, after the measure was rejected yesterday, spokesman Michal Lukac said. Slovakia is the only euro-area country yet to pass the plan. The euro may weaken toward $1.30 by year-end, Hardman said. “It looks like the euro-zone economy is heading into recession, and the U.S. economy is teetering on the brink. Those fundamentals haven’t changed,” he said. Undervalued Yuan The U.S. Senate passed legislation yesterday punishing China for its undervalued currency, increasing concerns that trade between the two nations will be hurt. U.S. lawmakers voted 63-35 to approve a measure that would let companies seek duties to compensate for a weak Chinese yuan. Governments that undervalue their currencies and don’t take corrective action would face penalties, including increased dumping duties and a ban on federal procurement in the U.S. South Korea’s won fell from a two-week high after a government report showed foreign direct investment in the country fell last quarter. The Ministry of Knowledge Economy said foreign direct investment in the country dropped 24.6 percent from a year earlier to $2.21 billion, the first decline in a year. “The markets are swinging back and forth in tandem with progress or setbacks in Europe’s plans to stem the crisis,” said Park Joo Hyung, currency dealer at Korea Exchange Bank in Seoul. “The Slovakia rejection threw cold water on sentiment again. This, together with importers’ dollar demand, is driving the won lower.” The won weakened 0.2 percent to close at 1,166.85 per dollar after advancing to 1,160.80 yesterday, the strongest since Sept. 23. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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