SF: Euro Rises to 4-Year High Versus Yen on German Deal; Baht Drops
Nov. 27 (Bloomberg) -- The euro strengthened to a four-year high against the yen as German lawmakers reached a coalition accord on wages and spending increases without raising taxes, spurring demand for the region’s assets.
The dollar extended a gain against the yen after jobless claims unexpectedly declined to the fewest in two months. The shared currency advanced for a second day versus the dollar as the deal ended the longest period of coalition talks in Chancellor Angela Merkel’s time in office. The Thai baht fell after the central bank unexpectedly cut interest rates.
“Euro-yen seems to be the driver of euro-dollar at the moment,” said Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered Bank in London. “It’s rock solid. I don’t think anyone in the market really doubted that Germany would find a stable coalition, but it just adds to the overall sense of continuity in Europe.”
The euro advanced 0.7 percent to 138.45 yen at 8:37 a.m. in New York after touching 138.53, the highest since August 2009. The common currency rose 0.2 percent to $1.3599 after climbing to $1.3613, the strongest level since Oct. 31. The dollar gained 0.5 percent to 101.79 yen.
Merkel clinched the coalition agreement with the Social Democratic Party that calls for a national minimum wage and pledges to increase spending on pensions and infrastructure.
German Coalition
The accord reached shortly before 5 a.m. in Berlin today after 17 hours of negotiations sets Merkel on track for a third term leading the nation until 2017. The agreement must still be passed by the entire SPD, which plans a referendum among its about 470,000 members.
“The euro was boosted by the news that Germany is close to reaching a coalition accord,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “I don’t think the euro will extend gains much from here.”
The euro has added 0.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen has fallen 2.8 percent in the same period, while the greenback has risen 2.1 percent.
The pound gained versus all its 16 major counterparts as the Office for National Statistics said gross domestic product increased 0.8 percent in the three months through September, matching an initial estimate.
‘Domestic Factors’
“The report showed the strengthening of the U.K. economy is being driven by domestic factors,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s consistent with the picture that we already knew, that the U.K. economy is strengthening. The break to the upside for pound versus the dollar was a reflection of it moving above the recent highs and that’s encouraged a squeeze higher.”
The U.K. currency advanced 0.5 percent to $1.6298 after climbing to $1.6328, the highest level since Jan. 2.
The dollar rose for the fourth time in five days against the yen as jobless claims in the week ended Nov. 23 declined 10,000 to 316,000, the Labor Department said today in Washington. The median forecast of 44 economists surveyed by Bloomberg called for an increase to 330,000.
Gains in the greenback were tempered as orders for U.S. durable goods dropped in October, reflecting a broad-based retreat and signaling the government shutdown hurt business confidence. Bookings for goods meant to last at least three years decreased 2 percent, matching the median forecast of economists surveyed by Bloomberg, after a 4.1 percent gain in September, the Commerce Department reported.
Fed Tapering
Fed policy makers will pare the monthly pace of bond buying, which tends to debase the U.S. currency, to $70 billion at their March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg survey this month.
The baht fell versus the dollar after the Bank of Thailand cut its one-day bond repurchase rate by a quarter of a percentage point to 2.25 percent amid political unrest that is hurting the nation’s economy. All 19 economists in a Bloomberg News survey predicted the rate would remain unchanged.
Protesters besieged government ministries this week, demanding that Prime Minister Yingluck Shinawatra step down. Political rallies against an amnesty for political offenses stretching back to a 2006 coup that ousted the prime minister’s brother, Thaksin Shinawatra, morphed into a wider movement. Protest leader Suthep Thaugsuban has called for a nationwide program of civil disobedience to bring down the administration.
The baht slid 0.1 percent to 32.12 per dollar after weakening 1.6 percent in the previous six days.
--With assistance from Mika Otsuka in New York, Yumi Ikeda and Mariko Ishikawa in Tokyo and Kristine Aquino in Singapore. Editor: Kenneth Pringle
