BLBG: Euro Near 2-Week High as ECB Sees Growth, U.S. Home Resales Up
By Catarina Saraiva and Lukanyo Mnyanda
Sept. 2 (Bloomberg) -- The euro was near its strongest in two weeks versus the dollar after European Central Bank President Jean-Claude Trichet said a double-dip recession is “not in the cards” and U.S. home resales unexpectedly rose.
The greenback fell against most of its major counterparts after the gain in existing-home sales signaled the U.S. housing market may be starting to stabilize. Trichet, speaking after the ECB left the benchmark rate at a record low of 1 percent, said risks to the inflation outlook are “on the upside.” The ECB extended emergency lending measures for banks into 2011.
“We got really solid pending home sales today -- that was really helpful,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “It moves forward the narrative of a risk-on trading theme.”
The euro was little changed at $1.2816 at 10:35 a.m. in New York, from $1.2809 yesterday, when it appreciated to $1.2856, the strongest level since Aug. 19. It lost less than 0.1 percent to 108.06 yen, compared with 108.15 yen, after being as weak as 107.46. The dollar fell 0.1 percent to 84.33 yen.
The index of pending home resales rose 5.2 percent after a revised 2.8 percent drop the prior month, figures from the National Association of Realtors showed today in Washington. A 1 percent decline was projected for July, according to the median forecast in a Bloomberg News survey of economists.
Stocks rose, with the Standard & Poor’s 500 Index gaining 0.4 percent and the MSCI World Index advancing 0.4 percent.
The euro area’s economy will probably expand between 1.4 percent and 1.8 percent this year, the ECB said. That’s up from a previous forecast range between 0.7 percent and 1.3 percent.
‘Comments on Inflation’
“It’s Trichet’s comments on inflation that might pick up and on the economic data that he said has been stronger than expected that supported the euro,” said Geoffrey Yu, a currency strategist at UBS AG in London. “The extension to emergency lending measures may have limited impact for now.”
The decision on emergency lending measures was signaled by council member Axel Weber in an Aug. 19 interview. Policy makers will keep offering banks unlimited one-week and one-month loans until at least Jan. 18, Trichet said today. The ECB will also offer banks three-month loans in October, November and December at interest rates linked to the ECB’s average benchmark rate over the maturity of the loan.
Worst Performer
Europe’s common currency fell 9.2 percent this year against nine other developed-world currencies, posting the biggest loss in the so-called Group of 10, Bloomberg Correlation-Weighted Currency Indexes show. The yen, the best performer, has risen 14.6 percent, while the dollar has gained 2.6 percent. The euro was hurt by investor concern that countries from Greece to Spain would struggle to repay their debts.
The euro was supported before the ECB’s announcement after data showed the region’s exports surged the most on record in the second quarter.
Exports from the euro region surged 4.4 percent from the first quarter, the biggest gain since data were first compiled in 1995, while corporate spending rose 1.8 percent, ending eight quarters of contraction, the European Union’s statistics office in Luxembourg said today.
The Swiss franc neared parity with the dollar after the country’s economy grew at a faster pace in the second quarter than economists predicted. The State Secretariat for Economic Affairs in Bern said gross domestic product rose 0.9 percent from the first quarter, when it increased 1 percent. Economists forecast a 0.8 percent gain, the median of 18 estimates in a Bloomberg News survey showed.
Swiss Franc
The franc gained 0.3 percent to 1.2969 per euro and was 0.4 percent stronger at 1.0115 against the dollar, approaching parity with the greenback for the first time since December.
“The data is in itself clearly positive for the franc,” said Paul Robinson, a currency strategist at Barclays Plc in London. “The franc remains driven primarily by market sentiment when it comes to comes to risk, particularly when it comes to European risk.”
The franc will stay strong and investors should hold it as a proxy for the former German mark as the currency benefits from economic growth and its status as a haven, UBS AG said.
“Today’s Swiss second-quarter GDP data confirms how closely Switzerland is matching Germany’s economic performance,” Mansoor Mohi-Uddin, global head of currency strategy in Singapore, wrote in an e-mailed note today. “We expect the franc to remain strong throughout the decade.”
Sweden’s krona advanced for a third day against the common European currency, gaining 0.2 percent to 9.3179.
The Riksbank, the world’s oldest central bank, raised the repo rate by a quarter of a percentage point to 0.75 percent, it said today on its website. The decision by the Stockholm-based central bank was predicted by 16 of the 21 economists surveyed by Bloomberg. Five predicted no change.
----With assistance from Anchalee Worrachate and Stephen Morris in London, Christian Vits in Frankfurt, Simone Meier in Zurich, Yasuhiko Seki in Tokyo and Ron Harui in Singapore. Editors: Greg Storey, Dave Liedtka
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
