BLBG:Euro Gains Versus Yen on Prospect of Combined Rescue Fund
The euro rose for a second day against the yen on prospects Europe may agree to combine two rescue funds to halt the spread of its sovereign-debt crisis.
The 17-nation euro also gained before a report forecast to show German business confidence held at the highest since July. The greenback advanced against the yen before a U.S. report this week that may show orders for durable goods increased in February. The Australian and New Zealand dollars climbed against the yen as prospects of a recovery in the world’s largest economy supported demand for higher-yielding assets. China set the yuan’s daily reference rate at a record high.
“It’s possible to see euro pick up slightly as people work out the implications of the bailout package and better economic statistics,” said Hans Kunnen, Sydney-based chief economist at St. George Bank Ltd. “Sentiment toward Europe is slowly improving.”
The euro rose 0.3 percent to 109.60 yen as of 6:40 a.m. in London from the close last week in New York. It traded at $1.3255 from $1.3270 on March 23, when it touched $1.3294, the most since March 2. The dollar rose 0.4 percent to 82.69 yen.
The Australian dollar rose 0.3 percent to 86.42 yen and New Zealand’s currency gained 0.1 percent to 67.46 yen.
Euro-area policy makers are discussing how to add to bailout funds, for example by allowing the temporary European Financial Stability Facility and the permanent 500 billion-euro ($664 billion) European Stability Mechanism to work concurrently to make more money available.
Rescue Funds
Deploying unused sums from the temporary fund while allowing the ESM to operate at capacity would bring a total crisis backstop to 692 billion euros. European Union finance ministers meet in Copenhagen starting on March 30.
German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have abandoned their opposition to combining the two euro-area rescue funds, Der Spiegel reported, citing unnamed government officials. The two German leaders have agreed that the permanent and temporary rescue funds may be “held in operation” for a transitional period, the magazine said in an e-mailed preview of its article.
The euro was 0.3 percent from a three-week high against the dollar before the Munich-based Ifo institute releases its German business climate index today. The gauge, based on a survey of 7,000 executives, stayed at 109.6 in March, according to a Bloomberg News poll of economists.
The euro climbed 0.6 percent in the past week, according to Bloomberg Correlation Weighted Indexes that track 10 developed- market currencies. The yen has strengthened 1.4 percent over the period, while the dollar gained 0.5 percent.
Dollar Gains
The dollar rose for the first time in four days against the yen before a March 28 report projected to show bookings for long-lasting U.S. factory goods rose 3 percent last month, according to the median estimate of economists surveyed by Bloomberg.
“The U.S. economic data in the next few weeks will be critical for U.S. dollar prospects,” New York-based Yuki Sakasai and Aroop Chatterjee, currency strategists at Barclays Capital, wrote in a note to clients. “The U.S. dollar would likely find support against yen and Swiss franc.”
Gains in the U.S. currency may be limited after its decline below the 20-day moving average last week signaled a reversal of the bullish trend, according to Gaitame.com Research Institute Ltd.
The dollar fell to as low as 81.98 yen on March 23, breaching the moving average for the first time since Feb. 8, said Takuya Kawabata, a Tokyo-based researcher at Gaitame.com, a unit of Japan’s largest currency-margin company. A close below that average, which is at 82.30 today, may signal a “downward correction” for the dollar, he said.
Yen Shorts
Futures traders cut bets the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a fall in the yen compared with those on a gain was 25,821 on March 20, compared with so-called net shorts of 42,380 a week earlier.
The yuan strengthened amid speculation Chinese policy makers are preparing to widen its trading band.
Former People’s Bank of China Deputy Governor Wu Xiaoling was quoted in the Oriental Morning Post today as saying the band may widen to 0.7 percent from the current 0.5 percent. The central bank fixed the yuan’s reference rate 0.05 percent stronger at 6.2858 per dollar, the highest since the currency was allowed to float in 2005. The yuan rose 0.03 percent to 6.3061 per dollar, according to the China Foreign Exchange Trade System.
Frontier Markets
“The direction remains for a mild appreciation,” said Sacha Tihanyi, a senior currency strategist at Scotia Capital in Hong Kong. “The reference rate is at a record high, but it doesn’t mean that we aren’t going to see a repeat of the volatility we have seen.”
Foreign-exchange traders, faced with lower volatility and record-low interest rates in the U.S., Europe, the U.K. and Japan, are searching for returns as far afield as Kazakhstan and Nigeria. The JPMorgan G7 Volatility Index (JPMVXYG7) has fallen to 10.18 percent from 12.35 percent in December, reducing money managers’ ability to exploit price moves.
Investec Asset Management Ltd., which trades currencies of nations from Colombia to Uganda, said demand for assets in so- called frontier markets increased in the past six months. The Cambridge Strategy (Asset Management) Ltd. invested in the Nigerian naira from December to February. Money manager Adrian Lee & Partners will add positions in six currencies, including Kazakhstan’s tenge and the Kenyan shilling by the end of the second quarter.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
