BLBG:Euro Little Changed Versus Dollar Amid EU Meetings
The euro was within half a cent of an eight-week high against the dollar before Italian Prime Minister Mario Monti and German Chancellor Angela Merkel meet in Berlin today to discuss measures to stem the debt crisis.
Europe’s shared currency held a gain from yesterday versus the yen as traders waited for the European Central Bank to outline details of its plan to buy government bonds. The Dollar Index (DXY) was little changed before data economists said will show pending home sales rose in July, adding to evidence the U.S. economy is gathering pace. Norway’s krone weakened amid bets the central Bank will leave its main interest rate unchanged today, while Sweden’s krona dropped against all its major peers.
“Europe’s politicians are all fully aware that the focus is on the ECB and getting more details on those plans,” said Derek Halpenny, the European head of global markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We see any further strength as an opportunity to sell the euro because we think the market expectations of the ECB are too high. Things are going to get worse before they get better.”
The euro was little changed at $1.2559 at 11:16 a.m. London time. It climbed to $1.2590 on Aug. 23, the strongest since July 4. Europe’s shared currency was at 98.69 yen after gaining 0.2 percent yesterday. The dollar traded at 78.60 yen.
An advance to $1.27 or $1.28 represents a good opportunity to sell Europe’s shared currency, Halpenny said. He predicts the currency will weaken to $1.17 by the end of the year.
Bond Buying
The euro has climbed 2.7 percent against the dollar since Aug. 1, the day before ECB President Mario Draghi said the central bank may buy Spanish and Italian bonds to cap borrowing costs. He will give a press conference on Sept. 6 in Frankfurt after the next meeting of policy makers. Itay’s Monti has said that he may request the bond buying to bring down funding costs.
“I don’t want Italy, after all the efforts we have made which are producing results, to be subjected to some sort of intrusive special administration like has happened with the countries that needed aid to balance their accounts,” Monti said in an interview published in Il Sole 24-Ore today.
The euro has appreciated 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies, amid speculation policy makers will succeed in stemming market turmoil. The dollar has declined 1.3 percent and the yen has fallen 1.5 percent.
‘Next Hurdle’
“The next hurdle for the euro is Spain and Italy accepting that they need help, the onus is on them to ask for the help,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. “The long-term trend is downward because the risks around the euro are very large,” he said, forecasting that the currency will weaken to $1.19 by the end of the year.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, was little changed at 81.418. The index dropped to 81.221 on Aug. 23, the lowest level since June 20.
Pending home sales, or contract signings for existing properties, rose 1 percent in July after a 1.4 percent drop the prior month, according to economists’ forecast before the report from the National Association of Realtors today. The Commerce Department’s first revision to second-quarter gross domestic product may show a gain of 1.7 percent compared with an initially reported 1.5 percent increase, according to a separate survey.
‘Overdone Exuberance’
Federal Reserve Chairman Ben S. Bernanke will give an Aug. 31 speech at a meeting of central bankers in Jackson Hole, Wyoming that may shed light on the outlook for U.S. monetary policy as signs of an improving economic outlook dull the case for more stimulus.
“There’s a bit of overdone exuberance in the market at the moment about the prospect of more stimulus,” said Carolin Hecht, a currency strategist at Commerzbank AG in Frankfurt. “All the expectations regarding more stimulus have been very supportive for the euro and we think the ECB and the Fed may disappoint.”
The euro will depreciate to $1.22 by the end of September and end the year at $1.20, Hecht predicted.
The euro may struggle to climb above the Aug. 23 high of around $1.2590 and the 100-day moving average, at $1.2596 today, according to Ulrich Wortberg, an analyst at Helaba Landesbank Hessen-Thueringen in Frankfurt.
“Price movements above this would create potential for a move to $1.2693 and $1.2748,” he wrote in an e-mailed note to clients. “However, if Fed chairman Bernanke disappoints market participants and does not provide any clear indications of imminent monetary easing in Jackson Hole on Friday, the euro’s upward stimulus could come to an end.”
Krone, Krona
Norway’s krone weakened against 13 of its 16 major peers tracked by Bloomberg, depreciating 0.3 percent to 5.8464 per dollar and 0.2 percent to 7.3412 per euro.
The Norges Bank will leave its overnight deposit rate at 1.5 percent, according to all 17 economists surveyed by Bloomberg.
Its Swedish counterpart will need to cut interest rates to 1 percent this year, Sweden’s National Institute of Economic Research predicted today. The krona fell 0.6 percent to 8.3559 per euro and 0.7 percent to 6.6562 per dollar.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
