BLBG:Euro Touches Month-High on Spain Optimism Before Summit
The euro strengthened to a one-month high against the dollar on speculation Spain will move toward seeking financial aid, helping contain Europe’s debt crisis.
The 17-nation currency rose versus 14 of its 16 major peers after Moody’s Investors Service kept Spain’s credit rating at investment grade and as European Union leaders prepared for a two-day summit in Brussels starting tomorrow. The dollar fell before a report that economists said will show U.S. housing construction climbed last month, damping demand for safer assets. Australia’s currency appreciated to a two-week high as investors sought higher-yielding assets.
“The euro is rising amid speculation Spain will request a precautionary credit line,” said Masato Yanagiya, head of currency and money trading in New York at Sumitomo Mitsui Banking Corp. “Expectations are rising before the EU summit.”
The euro gained 0.5 percent to $1.3116 at 8:14 a.m. London time after rising to $1.3124, the highest level since Sept. 17. The common currency advanced 0.4 percent to 103.36 yen. The dollar declined 0.1 percent to 78.79 yen.
Moody’s said in a statement yesterday that it assigned a negative outlook on Spain’s Baa3 sovereign debt as it concluded the review for possible further downgrade of the country’s rating that it had initiated in June.
Credit Line
Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said yesterday. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain.
“The euro continues to be bought,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “The news from Moody’s about the Spanish rating is also buoying the euro as it eliminates one of the concerns in Europe.”
Spain will sell bonds due in 2015, 2016 and 2022 tomorrow. The nation’s 10-year yield fell 27 basis points to 5.53 percent after dropping to 5.52 percent, the lowest since April 4.
“Spanish bonds are still not reflecting the fact that Moody’s reaffirmed their rating, so we could see yields decline further, which should be positive for risk sentiment,” said Alvin Pontoh, a strategist at TD Securities Inc. in Singapore. “That suggests that the U.S. dollar could decline further.”
‘Solid’ Support
The euro may rise to the highest in more than five months against the dollar, IG Markets Securities Ltd. said, citing trading patterns.
The shared currency’s upward trend line from the intraday low of $1.2054 on July 25 and Aug. 2 low of $1.2134 gives it “solid” support, said Junichi Ishikawa, an analyst at IG Markets in Tokyo. Should the euro rise above the Sept. 17 high of $1.3172, it may appreciate to $1.32, he said. Support refers to a level where orders to buy may be clustered.
The Dollar Index (DXY) dropped for a second day before the Commerce Department releases its report on housing starts today. The data will show that new construction rose to a 770,000 annual pace in September from 750,000 in the previous month, according to the median estimate of economists surveyed by Bloomberg News.
Federal Reserve data yesterday showed industrial production increased 0.4 percent last month, beating the median forecast in a separate Bloomberg survey.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.4 percent to 79.104.
The Australian dollar rose 0.4 percent to $1.0319 after climbing to $1.0324, the strongest level since Oct. 2. The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
