The euro fell against the dollar, paring its third weekly rally, as Italy sold less than its maximum target at a bond auction and Fitch Ratings said part of the plan to contain debt turmoil amounts to a Greek default. Europe’s currency dropped from a seven-week high reached yesterday after leaders announced a way to prevent a Greek default and safeguard banks. The yen climbed toward a postwar record against the dollar, adding to speculation Japan will intervene to weaken its currency. The Australian dollar decreased on bets yesterday’s biggest advance in more than a year was too big to sustain. “This is not a rally that people expect to last, so we would sell the euro at present levels and certainly if we have a pop back up to around $1.4250,” said David Mann, regional head of research for the Americas at Standard Chartered in New York, recommending use of options to avoid volatility. “The Italian auction was a pretty high yield and looks unsustainable. They went ahead just to show that they can still tap the markets.” The euro fell 0.3 percent to $1.4148 at 10:05 a.m. New York time, trimming its weekly advance to 1.8 percent. It reached $1.4247 yesterday, the highest level since Sept. 6. The euro decreased 0.6 percent to 107.15 yen. The yen rose 0.3 percent to 75.74 per dollar after appreciating yesterday to a post-World War II record of 75.66. Drop in Stocks The Standard & Poor’s 500 Index dropped 0.5 percent, trimming its biggest monthly gain since 1974. The Stoxx Europe 600 Index fell 0.2 percent after rallying 3.6 percent yesterday. The Australian dollar slid 0.4 percent to $1.0691 after rising yesterday to $1.0753, the highest level since Sept. 1. The currency’s 3.2 percent gain against the U.S. dollar yesterday was the biggest since May 2010. The seven-day relative strength index for the Australian currency versus the dollar was at 73.81. A reading above 70 signals an asset’s price may have risen too quickly and may be due for a reversal. South Korea’s won was the best performer against the dollar among major currencies after the central bank said the current-account surplus increased to $3.1 billion in September from $293 million in the previous month. The nation last recorded a deficit in February 2010. The won touched a six-week high of 1,100.70 before trading 0.9 percent higher at 1,1004.88. Weekly Euro Rally The euro was headed for a weekly gain after European Union leaders agreed to increase the region’s rescue fund capacity to 1 trillion euros ($1.4 trillion) and persuaded holders of Greek bonds to accept a 50 percent writedown on the country’s debt. If it’s accepted, “the 50 percent nominal haircut on the proposed bond exchange would be viewed by the agency as a default event under its Distressed Debt Exchange criteria,” Fitch said in a statement today. The accord is “ a necessary step to put the Greek sovereign’s public finances on a more sustainable footing.” This week’s rise in the euro “shows expectations were very low for what would come out of the meeting,” said Geoff Kendrick, head of European currency strategy at Nomura Holdings Inc. in London. “I am relatively skeptical about how long this will last because I think it was just another plan for a plan.” Kendrick expects the euro to weaken to $1.30 by year-end. Italian Prime Minister Silvio Berlusconi conducted the first test of investor enthusiasm for Europe’s debt since the summit’s plan was announced, selling bonds today at euro-era record borrowing costs. Italian Sale The Treasury in Rome sold 7.93 billion euros, less than the maximum 8.5 billion-euro target, of four different bonds today. The yield on Italy’s benchmark 10-year bond rose 11 basis points, or 0.11 percentage point, to 5.98 percent. IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners, was little changed at 75.086, having dropped 1.6 percent this week on reduced demand for a refuge. The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 60.9 this month from 59.4 in September. The gauge was projected to drop to 58, according to the median forecast of 66 economists surveyed by Bloomberg News. The preliminary reading for the month was 57.5. Federal Reserve policy makers and the administration of President Barack Obama are considering additional measures to cut a jobless rate that has been stuck at about 9 percent or higher for 30 months. The yen is the biggest gainer among 10 developed-nation currencies in the past six months, rising 11 percent, according to Bloomberg Correlation-Weighted Currency Indexes. The appreciation has led Nintendo Co., the world’s largest maker of video-game machines, to forecast its first annual loss in at least 30 years. Japanese Finance Minister Jun Azumi said he will take “bold” action against the strong yen if needed. To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Want to save this for later? Add it to your Queue!

Source