The euro advanced for a third straight week against the dollar in the longest stretch of gains since June after European leaders agreed to a recapitalization of banks and voluntary losses for holders of Greek debt. The dollar was headed for a drop against all of its major counterparts in October as speculation the Federal Reserve may embark on a third round of asset purchases spurred risk appetite before the U.S. central bank meets next week. The yen reached a record high against the greenback in three consecutive sessions this week on bets the Bank of Japan will fail to stem the currency’s gains. “It’s nice to see a group of officials actually act like adults and get something done in a welcome surprise to the market,” said Greg Salvaggio, senior vice president of capital markets at the currency-trading firm Tempus Consulting Inc. in Washington, referring to the European accord. “The euro went higher. We now have to start focusing on if it has really been contained. It’s still a very, very thick animal over there.” The 17-nation euro rose 1.8 percent to $1.4147 this week, trading higher than $1.40 for the first time since September. The yen appreciated 0.6 percent to 75.82 per dollar and touched the post-World War II high of 75.66 on Oct. 27 after also setting records on the two previous days. The euro increased 1.2 percent to 107.28 yen. Rally in Stocks The Standard & Poor’s 500 Index rallied for a fourth week, advancing 3.8 percent. The Thomson Reuters/Jefferies CRB Index of raw materials rose 3.9 percent. Mexico’s peso rose 5 percent to 12.9989 versus the dollar on increased demand for higher-yielding assets. South Africa’s rand gained 3.9 percent to 7.7259. Hedge funds and other large speculators this week reduced bets that the dollar will gain against major counterparts, the Commodity Futures Trading Commission reported yesterday. Net bets the greenback will rise against the yen, euro, Australian dollar, Swiss franc, Canadian currency, pound, Mexican peso and New Zealand dollar dropped to 86,271 contracts for the week ended Oct. 25 from 126,628. Canada’s dollar had the fourth-smallest gain versus the greenback among major currencies after the Bank of Canada cut its growth outlook. The loonie, as the currency is also known, climbed 1.5 percent to 99.17 cents per U.S. dollar, trailing all of its major counterparts except the yen, pound and Taiwan dollar. It advanced to a level stronger than parity versus the greenback for the first in time in a month. Canadian Outlook The Bank of Canada said the annualized pace of expansion in the world’s 10th-largest economy will average 1.8 percent in the four quarters through June, compared with a previous estimate of 2.8 percent. Brazil’s real rallied against all of its most-traded counterparts tracked by Bloomberg as the central bank sold currency swaps four times starting in September, reversing a 28- month-old strategy aimed at stemming the currency’s increase. The real gained 5.8 percent to 1.6721 per dollar after advancing yesterday to 1.6720, the strongest since Sept. 9. IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners, fell for a fourth week in the longest stretch of losses since April. The gauge, which is weighted 57.6 percent to the euro, fell 1.6 percent to 75.089. It touched a seven-week low of 74.724 on Oct. 27. U.S. gross domestic product grew at a 2.5 percent annual pace in the third quarter after advancing 1.3 percent in the previous three months, the Commerce Department reported. The reading matched the median forecast of 83 economists in a Bloomberg News survey. Fed Meeting The Federal Open Market Committee meets Nov. 1-2 to discuss monetary policy. It announced on Sept. 21 a program to lengthen maturities in its portfolio, an effort known as Operation Twist after a similar program in the 1960s. New York Fed President William C. Dudley said this week the central bank has the option of starting a third round of asset purchases, known as quantitative easing. The euro rose 2 percent against the dollar on Oct. 27, the most since July 2010, 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. Europe’s currency pared its weekly gain after Fitch Ratings said yesterday that writedowns on Greek debt would indicate a default and Italy’s borrowing costs rose at a debt sale. ‘Selective Default’ “It’s interesting that Fitch is stating what most people see as obvious that there has been a selective default in Greece,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. The yen strengthened even after the Bank of Japan expanded its credit and asset-purchase programs to a total of 55 trillion yen ($724 billion) from 50 trillion yen to damp the currency’s appreciation, which harms exporters. It also kept the overnight lending rate at zero to 0.1 percent. “The Bank of Japan is the only central bank in the world whose currency appreciates in the wake of more monetary stimulus,” said Jessica Hoversen, an analyst at the futures broker MF Global Holdings Ltd. in New York. “People have been dollar-bullish against the yen, and this could also be an unwind in positions.” To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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