SF: Euro Surges Most This Year as EU Eases Terms for Spanish Loans
June 29 (Bloomberg) -- The euro surged the most this year against the dollar after European leaders eased terms on loans to Spanish banks, taking a step toward resolving the region’s debt crisis and boosting demand for the shared currency.
The 17-nation euro posted its biggest gain in eight months versus the yen as European Union President Herman Van Rompuy said officials meeting in Brussels agreed to drop the condition that emergency loans to Spanish banks give creditor governments preferred status. The Australian and New Zealand dollars advanced as stock gains boosted demand for higher-yielding assets.
“Expectations were so low going into the meeting that any positive news would’ve triggered that kind of impact,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “There’s still no bond-buying framework in place. There’s still a structural problem that hasn’t been addressed yet.”
The euro advanced 1.9 percent to $1.2683 at 11:11 a.m. New York time after rising as much as 2 percent, the biggest intraday gain since Oct. 27. The currency jumped 2.3 percent to 101.21 yen, the most since Oct. 31. The yen fell 0.5 percent to 79.82 per dollar.
EU leaders gather today for a second day of talks to discuss measures to stem a debt crisis that’s spurred five euro members to seek international bailouts. Earlier this month, Spain agreed to take a rescue loan of as much as 100 billion euros ($127 billion) to help recapitalize its banking sector.
Dollar Index
The Dollar Index fell as much as 1.7 percent, the most since Oct. 27, ending a two-day rally as the EU’s Spanish bond decision decreased investor appetite for risk-averse assets. The index is used by IntercontinentalExchange Inc. to track the greenback against the currencies of six U.S. trading partners.
The dollar has weakened against nine of its 16 most-traded counterparts this year, with the Mexican peso’s 3.8 percent rise leading gainers. The euro dropped 2.1 percent and the yen fell 3.4 percent, the biggest decline after the Brazilian real’s 7.6 percent plunge.
The yen fell versus all of its major counterparts as rising U.S. yields draw more funds into dollar-based securities, helping weaken the yen. Treasury two-year notes yield about 20 basis points, or 0.20 percentage point, more than Japanese bonds of similar maturity. The spread has widened from 13 basis points in September.
Japan’s currency depreciated 0.5 percent to 79.82 yen.
Rand, Loonie
South Africa’s rand rose against all but one of its major counterparts, rallying the most in more than seven months as stocks and commodities surged after the decision to support Spain’s banks boosted demand for riskier assets. The currency gained 2.5 percent to 8.1948 per dollar after rising as much as 2.7 percent, its biggest increase since Nov. 30.
Canada’s dollar also advanced the most since Nov. 30 versus the dollar as rising stocks and commodities increased demand for higher yielding assets. The so-called loonie appreciated 1.4 percent to C$1.0185.
Spain’s 10-year bond yield dropped 52 basis points to 6.42 percent after falling as much as 55 basis points, the biggest decline since Dec. 5. Italy’s 10-year yield slid 38 basis points to 5.82 percent.
Euro-area finance ministers will enact today’s deal on loans to Spanish banks at a meeting on July 9, Rompuy said, calling the accord a “breakthrough.”
The European Union has “addressed the issues on the seniority of Spanish loans,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank. “The fact that right now they are renouncing the seniority status means private bondholders will have similar, equal, weighting. It’s positive for the euro.”
‘Game Changer’
The euro is still set for its biggest quarterly drop against the dollar and the yen since September. The euro has weakened 8.5 percent versus the yen since March 31, and 5 percent against the dollar.
