BS: Euro Climbs as IMF Proposes $500 Billion Boost; Dollar Weakens
By Catarina Saraiva and Emma Charlton
Jan. 18 (Bloomberg) -- The euro strengthened for a second day against the dollar and yen as the International Monetary Fund proposed boosting its lending capacity by as much as $500 billion to safeguard the global economy.
The 17-nation currency rallied against most of its major peers as Greek officials resumed negotiations with bondholders. The dollar fell against the euro on reduced demand for a refuge as U.S. data showed a rebound in industrial production. Brazil’s real climbed as risk appetite improved, while the pound weakened against the euro as Britain’s unemployment rose.
“The rally in the euro seems like it’s continuing,” said Kathy Lien, director of currency research with online trading firm GFT Forex in New York. “People realize that policy makers have no choice but to come up with additional rescue plans for these countries and to actually commit additional funds to provide a safety net for these countries.”
The euro appreciated 0.6 percent to $1.2818 at 11:55 a.m. New York time, after rising 0.5 percent yesterday. Europe’s shared currency climbed 0.6 percent to 98.47 yen. It fell on Jan. 16 to 97.04 yen, the weakest level since December 2000. The dollar was little changed today at 76.82 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.5 percent to 80.715.
Output at U.S. factories, mines and utilities rose 0.4 percent last month after a revised 0.3 percent decline in November, Federal Reserve data showed today in Washington. Economists in a Bloomberg News survey forecast a 0.5 percent rise for December.
Homebuilder Confidence
The euro remained stronger versus the dollar as a report showed confidence among U.S. homebuilders rose this month to the highest level since June 2007. The National Association of Home Builders/Wells Fargo sentiment gauge increased to 25 this month, the Washington-based group said today. Readings lower than 50 mean more respondents still said conditions were poor.
Sterling dropped for a second day against the euro and Swiss franc as data showed the U.K.’s unemployment rate rose to 8.4 percent in the quarter through November, the highest since January 1996.
The pound depreciated 0.2 percent to 83.18 pence per euro and declined 0.1 percent to 1.4540 Swiss francs. Sterling rose 0.5 percent to $1.5409.
IMF Boost
The euro rallied versus the dollar and yen as an IMF spokesman said in a statement that the Washington-based lender wants to increase its resources after identifying a potential need for $1 trillion in coming years. The IMF is studying options and will not comment further until it has consulted its members, the fund said.
Greek Finance Minister Evangelos Venizelos said talks on a debt-swap plan for his country are at a “fine point.”
“The negotiations with the private sector are at a very fine point,” Venizelos told lawmakers in Athens today in comments televised live on state-run Vouli TV.
Greece resumed talks today with the Institute of International Finance, which represents private creditors. The Washington based IIF broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds.
Global demand for U.S. financial assets rose more than forecast in November, boosted by investors seeking shelter from the European debt crisis. Net buying of long-term equities, notes and bonds totaled $59.8 billion, compared with net purchases of $8.3 billion in October, the Treasury said today in Washington. Including short-term securities, foreigners bought a net $48.6 billion compared with net selling of $39.6 billion the previous month.
‘Increasing Pressure’
The euro “will come under increasing pressure through the course of the year,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. He spoke in an interview on Bloomberg Radio’s “Bloomberg - The First Word” with Ken Prewitt.
The euro weakened 4 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen rose 8 percent in the best performance in the gauge of 10 developed-nation currencies. The dollar gained 6.4 percent.
Futures traders last week increased bets to a record that the euro will decline against the dollar. The difference between wagers that the shared currency will fall versus those that it will rise -- so-called net shorts -- surged to 155,195 in the week ended Jan. 10, data from the Commodity Futures Trading Commission showed on Jan. 13.
‘Classic Sign’
“Compared to one week or two weeks ago, the odds of a Greek messy or coercive default are greater, yet the euro” has gained for two days, said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “It’s a classic sign of how short the market is euro. The fact that it can’t sell off on bad news tells you that there’s a bit of fatigue setting in with euro bears,” he said. A short position is a bet a currency will weaken.
Higher-yielding currencies rose as stocks advanced, boosting demand for risk. Sweden’s krona and Brazil’s real gained the most against the dollar among major currencies, with the krona rising 0.8 percent to 6.8716 and the real strengthening 0.9 percent to 1.7723 to the greenback.
The Standard & Poor’s 500 Index rose 0.5 percent.
--With assistance from Monami Yui in Tokyo and Masaki Kondo in Singapore. Editors: Greg Storey, Kenneth Pringle
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
