BLBG:Euro Rises as Crisis Optimism Boosts Demand; Krona Climbs
The euro approached a one-month high against the dollar after European leaders signaled rising confidence that the region’s crisis is near an end.
Europe’s shared currency advanced against all but one of its 16 major peers as euro-area finance ministers prepared to meet in two days to weigh increasing the total capacity of Europe’s bailout fund. The yen strengthened amid speculation Japanese companies will repatriate overseas earnings before the end of the fiscal year on March 31. The pound dropped after a report confirmed the U.K. economy shrank, while Sweden’s krona rose on data showing consumer confidence improved.
“Things have calmed down a bit regarding the debt crisis, and people are taking a more optimistic view,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “The market knows it is going to get a bigger bailout fund. There is better risk sentiment,” which is boosting the euro, he said.
The 17-nation currency advanced 0.3 percent to $1.3352 at 6:57 a.m. New York time, after climbing to $1.3386 yesterday, the highest level since Feb. 29. The euro was little changed at 110.82 yen, after erasing a decline of as much as 0.5 percent. The yen gained 0.2 percent to 83 per dollar.
The implied volatility for three-month euro-dollar options, which indicates expected swings in the underlying currencies, fell to as low as 9.74 percent, the least since August 2008.
Combining Bailout Funds
Sweden’s krona advanced against all its major peers, rising 0.6 percent to 6.6495 per dollar. The pound weakened 0.5 percent to 83.87 pence per euro, after slipping as much as 0.6 percent, the biggest drop since Feb. 22.
The 17-nation euro was bolstered by speculation officials will discuss combining the temporary European Financial Stability Facility and its permanent successor from July, the European Stability Mechanism, at this week’s meeting in Copenhagen. German Chancellor Angela Merkel said two days ago her country may back plans for the funds to run in parallel. Italian, Portuguese and Spanish 10-year government bonds rose.
“For the moment, the market is happy to hold the euro at relatively high levels on the basis that there’s not going to be an absolute financial crisis emanating from Europe,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “Perhaps patience over the coming month will be tested.”
The euro has risen 0.6 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has depreciated 2.6 percent, while the yen has fallen 11 percent, set for its biggest drop since the third quarter of 1995, the indexes show.
Resistance Levels
The next resistance levels for Europe’s shared currency are around the highs posted at the end of February, of $1.3487, Ulrich Wortberg, an analyst at Helaba Landesbank Hessen- Thueringen in Frankfurt, wrote in an e-mailed note. The single currency should find support at $1.3300, he wrote. Resistance refers to an area where sell orders may be grouped, while support refers to a level where buy orders may be.
The yen strengthened amid speculation Japanese companies will repatriate overseas earnings before the end of the fiscal year on March 31.
Japanese Exporters
“The yen move is driven by supply and demand before the final exchange-rate fixing of the fiscal year,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “While there haven’t been a whole lot of orders from Japanese exporters to sell the dollar into the end of March, I think we’ll start to see some rise in demand to buy the yen.”
Major Japanese banks announce the yen fixing rate at 10 a.m. in Tokyo each day to their customers, based on the spot market at 9:55 a.m.
Orders for U.S. durable goods probably rebounded in February, a report today is forecast to show. Bookings for goods meant to last at least three years rose 3 percent after dropping 3.7 percent the prior month, according to the median forecast of economists surveyed by Bloomberg News.
Sweden’s consumer confidence index rose to zero from minus 3.2 the previous month, the Stockholm-based National Institute of Economic Research said today. Economists predicted a reading of minus 2, according to the median of 14 forecasts in a Bloomberg survey.
Krona Bets
The positive Swedish data are a signal for investors to sell the euro and buy the krona, Carl Hammer, chief foreign- exchange strategist at SEB AG in Stockholm, wrote in an e-mailed note to investors. SEB recommends buying the krona at current levels and targeting an appreciation to 8.65 per euro, he wrote. Investors should exit the trade if the krona weakens to 8.98 per euro, he wrote. The krona strengthened 0.3 percent to 8.8773 per euro.
Britain’s pound fell after a report showed the economy shrank more than first estimated in the fourth quarter, strengthening the case for the central bank to maintain asset purchases.
U.K. gross domestic product dropped 0.3 percent from the previous three months, compared with an earlier estimate of 0.2 percent, data showed today. Bank of England Governor Mervyn King said yesterday he has an open mind on whether more monetary stimulus, or quantitative easing, is needed.
Sterling depreciated 0.2 percent to $1.5917.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net;
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
