BLBG:Euro Rises on Speculation ECB Buying Will Bring Yields Down; Franc Gains
The euro strengthened against the dollar, snapping a four-day decline, amid speculation European Central Bank buying of Italian and Spanish bonds will stem surging borrowing costs in the region.
Europe’s currency rallied from a five-week low versus the yen as ECB President Mario Draghi called on politicians to accelerate the implementation of agreed reforms of the region’s rescue fund. The Dollar Index dropped for a second day after Federal Reserve Bank of New York President William C. Dudley said the central bank can do more to boost the economy. The Swiss franc rose against its 16 major counterparts.
“The euro is still very vulnerable but one factor that has been supportive this week has been that every day when the ECB has come in and bought stressed debt, the euro has reacted favorably,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There’s this psychology going on surrounding what the ECB might do, which is giving the euro some support.”
The euro advanced 0.7 percent to $1.3545 at 9:32 a.m. in London, after sliding 2.1 percent in the four days through yesterday. The shared currency climbed 0.2 percent to 103.87 yen, after dropping to 103.41 on each of the past two days, the lowest level since Oct. 10.
The ECB bought Italian government bonds today according to four people with knowledge of the trades, who declined to be identified because the transactions are private. Three said the central bank purchased Spanish debt. A spokesman at the central bank declined to comment.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped 0.5 percent to 77.877.
“I am deeply unhappy with the current forecast of prolonged high unemployment, and will continue to review whether there is more that we could do that would bring more benefit than cost,” Dudley said yesterday in West Point, New York. “If additional asset purchases were deemed appropriate, it might make sense to do much of this in the mortgage-backed securities market,” the New York Fed chief said.
In addition to cutting interest rates to record lows, the Fed has already engaged in two rounds of asset purchases, or quantitative easing, to stimulate the economy. The central bank also implementing a plan to replace $400 billion of its shorter maturity holdings with longer-term debt.
The franc climbed 1.1 percent to 91.22 centimes per dollar and advanced 0.5 percent to 1.2352 per euro.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
