BLBG:Euro Holds Gain as Spain Pledge Boosts Bailout Prospects
The euro remained higher after an advance yesterday as Spain’s pledge to meet its deficit target improved its prospects for an international rescue that will help stem Europe’s debt crisis.
The 17-nation currency headed for a second weekly decline versus its U.S. counterpart before a report today that may confirm France’s economy failed to grow for a third-straight quarter. Economists estimate that data next week will show euro- area manufacturing contracted and unemployment climbed to a record. The Australian dollar strengthened on speculation signs of a slowdown in China will prompt authorities there to boost stimulus measures.
“There is little doubt that at some point Spain is going to have to ask for aid,” said Kymberly Martin, a markets strategist in Wellington at Bank of New Zealand Ltd. “They are just trying to get as much of their own house in order so that they can negotiate the best condition for themselves. It’s genuinely well supported risk-appetite.”
The euro added 0.1 percent to $1.2931 at 6:54 a.m. in London after gaining 0.3 percent yesterday. It bought 100.16 yen from 100.20. The yen advanced 0.2 percent to 77.46 per dollar after earlier touching 77.44, the strongest since Sept. 13. The Australian dollar climbed 0.2 percent to $1.0463.
Europe’s shared currency has fallen 0.4 percent against the greenback since Sept. 21, paring its quarterly advance to 2.1 percent. The yen headed for a 0.9 percent five-day gain and has strengthened 3 percent since June 29.
Low Volatility
Price swings in major currencies ebbed before the start of holidays in China next week. The JPMorgan G7 Volatility Index fell to 7.74 today, the lowest since October 2007.
Spanish Prime Minister Mariano Rajoy’s government announced its fifth austerity package yesterday, which included a new tax on lottery winnings and a cut in ministries’ spending to shrink the euro area’s third-biggest budget deficit. The 2013 shortfall target is 4.5 percent of gross domestic product compared with a 6.3 percent goal for this year.
The steps may ease demands creditor countries such as Germany and the Netherlands would make in exchange for a financial lifeline. Rajoy said on Sept. 25 in comments to the Wall Street Journal that were confirmed by his office that he would “100 percent” seek help if bond yields remained too high.
Spain’s 10-year yield dropped 12 basis points to 5.95 percent yesterday.
‘Short-Term Low’
A “short-term low” at $1.2828 may be in place for the euro, according to United Overseas Bank Ltd. (UOB) Should it avoid dropping below this level, Europe’s shared currency may test “strong” resistance at $1.3005 to $1.3010, analysts Quek Ser Leang and Jimmy Koh wrote in a research note today. Resistance is an area on a chart where orders to sell may be clustered.
The yen strengthened versus all of its 16 major counterparts this week as a dimming outlook for the global economy spurred demand for the currency as a refuge.
Japan’s statistics bureau said today consumer prices fell 0.3 percent in August from a year earlier, matching the steepest decline in 16 months as the central bank remains distant from its 1 percent inflation target. The Ministry of Trade said in a preliminary report industrial production fell 1.3 percent last month after a 1 percent drop in July.
Forecast Downgrade
Fitch Ratings lowered its forecasts for growth in China and India this year, citing “a deteriorating global growth outlook with diminished willingness or capacity to respond with domestic policy loosening,” according to a statement today. The yen tends to strengthen during periods of economic and financial turmoil because Japan’s current-account surplus means it isn’t reliant on foreign capital.
Japan’s weak data are “probably reflective of global concerns,” Bank of New Zealand’s Martin said. “Sometimes, when you get indicators that suggest slowing global growth, the yen actually strengthens.”
A final estimate for France’s GDP will probably show the figure was unchanged in the three months through June 30 from the previous period, according to the median estimate in a Bloomberg News survey of economists before national statistics office Insee releases the data today.
Figures due Oct. 1 will probably confirm that a manufacturing purchasing managers’ index for the euro area was at 46 this month, indicating a contraction for the 14th-straight period, a separate poll showed. The same day, data from the European Union will probably show the currency bloc’s unemployment rate climbed to 11.4 percent in August, economists said. That would be the highest in data compiled by Bloomberg going back to 1990.
Yen Repatriation
The yen also strengthened amid speculation Japanese companies are bringing home overseas earnings at the midpoint of the fiscal year that began April 1.
“What is driving the yen is capital inflows into Japan,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong, said in a Bloomberg Television interview today. “Japanese institutions are repatriating, perhaps ahead of the half-fiscal year end.”
The Australian dollar gained versus its peers before HSBC Holdings Plc and Markit Economics releases tomorrow the final figure for its manufacturing purchasing managers’ index for China, the South Pacific nation’s biggest trading partner. The preliminary report released Sept. 20 showed the gauge was at 47.8, signaling an 11th month of contraction.
The National Bureau of Statistics and China Federation of Logistics and Purchasing will publish its factory output measure for the world’s second-largest economy on Oct. 1. Economists surveyed by Bloomberg predict the index climbed to 50.1 this month, above the 50 level that separates contraction from expansion.
“The figures coming out emphasize the need for China to look at their stimulus package and roll out more,” said Matthew Stanley, Sydney-based head of Asia-Pacific sales at Velocity Trade Ltd., a currency brokerage.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
