The euro strengthened to a one-month high against the dollar after Spain kept its investment grade credit rating from Moody’s Investors Service, spurring a rally in Spanish and Italian bonds. The 17-nation currency appreciated for a fifth day versus the yen amid speculation European Union leaders meeting in Brussels tomorrow will reach an agreement on providing more help for Greece. The dollar weakened before a U.S. report that economists said will show house building climbed last month, damping demand for safer assets. The pound rose against the greenback after U.K. jobless claims unexpectedly declined. “It’s about potential relief with regard to Spain� and optimism that Greece will receive additional bailout payments, said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. (BK) in London. “Those two factors are the key to understanding why the euro is going higher.� The euro gained 0.5 percent to $1.3116 at 7:01 a.m. New York time after rising to $1.3129, the highest level since Sept. 17. The common currency advanced 0.2 percent to 103.22 yen, extending its rally over the past week to 2.5 percent. The dollar declined 0.3 percent to 78.70 yen. Moody’s said yesterday it kept Spain’s credit rating at Baa3, one step above junk, as the risk that the nation would lose market access had fallen because of the European Central Bank’s willingness to purchase its bonds. 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, the budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Spain’s 10-year bond yield fell as much as 29 basis points to 5.51 percent, the lowest since April 4, while Italian 10-year yields declined to the least since March 19. Benchmark Spanish borrowing costs have dropped more than 2 percentage points from their record high of 7.75 percent on July 25. Options traders are the least bearish on the euro versus the dollar in more than two years. The premium for six-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 1.15 percentage points, the least since Oct. 15, 2010 based on closing prices compiled by Bloomberg. That’s down from a 2012 high of 3.715 percentage points on May 23, the 25- delta risk reversal rate show. Risk reversals measure the difference between implied volatility, or a gauge of price and demand, on similar puts and calls. Traders pay a premium for puts when they expect the euro to decline. Euro ‘Rebound’ “The euro rebound has accelerated, reflecting building investor optimism regarding Spain,� Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients. Sentiment was also helped “by speculation that Germany has softened its stance to Spain requesting a precautionary credit line,� he wrote. The Dollar Index (DXY) dropped for a second day before the Commerce Department releases its report on housing starts. 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. Industrial production increased 0.4 percent last month, the Federal Reserve said yesterday, 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 0.5 percent to 79.034. Pound Gains The pound climbed to a one-week high against the dollar after the Office for National Statistics said jobless-benefit claims fell 4,000 in September to 1.57 million. The unemployment rate measured by International Labor Organization methods declined to 7.9 percent between June and August. Sterling gained 0.3 percent to $1.6165 after rising to $1.6174, the highest since Oct. 5. Gains in the pound were tempered after minutes of the Bank of England’s Oct. 3-4 meeting released today showed that some policy makers felt there was “considerable scope� for more asset purchases to boost the economy. Australia’s currency appreciated to a two-week high versus the greenback as investors sought higher-yielding assets. The so-called Aussie rose 0.6 percent to $1.0341, the strongest level since Oct. 2. The euro may rise to the highest in more than five months against the dollar, IG Markets Securities Ltd. said, citing trading patterns. The 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. To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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