The euro climbed to its strongest level against the yen in six weeks amid optimism that European leaders are moving closer to an agreement on solving the region’s debt crisis that may involve buying sovereign debt. The shared currency gained versus most of its 16 major peers as Austrian Chancellor Werner Faymann said the breakup of the euro area or the bankruptcy of a member would do more harm than good, a day after his German counterpart Angela Merkel said leaders “feel committed to do everything� to safeguard the monetary union. Australia’s dollar snapped a two-day gain versus the greenback as the government said the central bank would be able to ease monetary policy if currency gains hurt the economy. “The market is very short on the euro and any signs that the crisis is being dealt with is reflected in� it rising, said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. A short bet is one that a currency will weaken. “Given that Merkel was talking as well, maybe that added credibility� to reports of progress, he said. The euro advanced 0.1 percent to 98.12 yen at 7:41 a.m. New York time, after climbing to 98.41, the most since July 6. It was little changed at $1.2359. Japan’s currency fell for a fifth day against the dollar, retreating 0.1 percent to 79.40. The 17-nation shared currency has gained 2 percent versus the yen this week, the most since the period through June 8. It’s up 0.6 percent against the dollar since Aug. 10. The yen is down 1.4 percent versus the greenback, its biggest weekly drop since the five days ended June 22. ‘Negative Consequences’ “The negative consequences of a euro zone breakup would by far exceed possible benefits it could have for individual countries,� Faymann said in a statement today. Merkel is due to meet French President Francois Hollande on Aug. 23 and Greek Prime Minister Antonis Samaras a day later. “Obviously time is pressing� on stamping out the debt crisis, though “on many of these issues we feel we’re on the right track,� she told reporters in Ottawa yesterday at a press conference with Canadian Prime Minister Stephen Harper. The euro gained 0.9 percent over the past week, the best performer alongside the Swiss franc among the 10 developed- market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 1.3 percent and the dollar gained 0.2 percent. “We’re starting to see the early signs of some real progress being made in the euro area,� said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “We do see the euro rebounding modestly over the next few months.� Aussie ‘Overvalued’ Australia’s dollar fell 0.7 percent to $1.0442, the biggest one-day drop since July 23, based on closing prices. For the week, it’s down 1.3 percent, the biggest drop since May 18. Models used by the International Monetary Fund and other analysts show, “the Australian dollar is overvalued compared to its medium- to long-run equilibrium value,� according to the Treasury report on its website today. The Reserve Bank of Australia will next week release minutes of its Aug. 7 meeting, where policy makers left the key interest rate at 3.5 percent. “Comments from the Australian Treasury added to growing concern that Australian dollar overvaluation is becoming an issue that could influence domestic monetary policy decisions,� Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London, wrote in a note today. To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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