BLBG:Euro Rises To Two-Week High On Spain Bailout Request
The euro rose against most of its major counterparts after the region’s governments agreed to provide Spain with a bailout loan, fanning expectations European leaders will step up effort to counter the debt crisis.
The 17-nation currency climbed to a two-week high after Spain asked for as much as 100 billion euros ($126 billion) to rescue its banking system, making it the fourth member in the currency bloc to seek rescue. The dollar and yen fell on decreased demand for refuge assets as Asian shares rallied.
“Markets were wondering whether Spain was going to drag on for another month or two,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. The Spanish bailout is positive for the euro “because it is evidence that policy makers are willing to act.”
The euro reached $1.2671, the highest since May 23, before trading at $1.2638 as of 11 a.m. in Tokyo, 1 percent higher than the June 8 close in New York. It jumped 1.2 percent to 100.70 yen. The dollar added 0.2 percent to 79.68 yen.
The MSCI Asia Pacific Index of shares advanced 1.7 percent.
Seven months after winning a landslide victory, Spanish Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize banks without external help. Foreign investors had cut holdings of the nation’s debt amid concern banks’ bad loans may overwhelm public finances, driving borrowing costs to near euro-era records.
Record Shorts
The bailout loan will be channeled through the state’s bank-rescue fund, known as FROB, and extended to lenders that need it. It is equivalent to about 10 percent of Spain’s gross domestic product and FROB debt counts as public debt, which amounted to 69 percent of GDP last year.
Futures traders had increased their bearish bets on the euro to an unprecedented level, according to figures from the Washington-based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro, so-called net shorts, compared with those on a gain was 214,418 on June 5, the most on record going back to 1999.
“The positive catalyst for the euro has come when there was a substantial amount of short positions,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co., a unit in Tokyo of Japan’s third-largest bank by market value. “These risk-off positions are likely to be unwound.”
The European currency has fallen 3.5 percent during the past six months, the worst performance among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 2.9 percent and the yen is little changed.
Growth Outlook
Demand for the euro was limited before data today that may add to signs the debt crisis is damping growth. European Central Bank President Mario Draghi said on June 6 that policy makers discussed cutting interest rates to a record low at a meeting that day.
“The growth outlook for most of the euro area is already bleak,” Guillermo Felices, head of European currency strategy in London at Barclays Plc, and Yuki Sakasai, a New York-based currency strategist, wrote in a research note. “One way to spur growth would be the ECB easing to weaken the euro. Otherwise, without growth, the euro will remain under pressure.”
Italy’s economy, the third-biggest in the region, shrank 0.8 percent in the first three months of this year from the fourth quarter, a third-consecutive contraction, according to economist estimates taken before the final GDP reading is released today. French industrial production decreased for a second month in April with a 0.1 percent decline, a separate survey showed.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
