BLBG: Euro Rises for Third Day as German Producer Prices Gain More Than Forecast
The euro climbed for a third day against the dollar amid optimism a bailout for Ireland will limit contagion across Europe’s larger debt markets.
The dollar weakened versus 15 of its 16 most actively traded peers as Federal Reserve Chairman Ben S. Bernanke defended the U.S. central bank’s monetary stimulus policy. The 16-nation euro, which is headed for a weekly gain versus the yen, was also supported as a report showed German producer prices rose more than economists forecast. The yen rose against the Australian dollar, snapping a two-day decline, as China increased banks’ reserve ratio requirements.
“Ireland appears close to an agreement on its bailout, which is positive for sentiment,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “The German economy is powering ahead. Stronger-than- forecast German PPI data lends support to the euro in the short term.”
The 16-nation currency climbed 0.6 percent to $1.3728 at 10:56 a.m. in London, from $1.3643 in New York yesterday. The euro strengthened 0.3 percent to 114.24 yen, compared with 113.95 yen yesterday and 113.02 a week ago.
Japan’s currency strengthened 0.4 percent to 83.22 per dollar, after falling to 83.79 yesterday, its weakest level since Oct. 5. The yen was set for a 0.8 percent decline versus the dollar this week. The Japanese currency strengthened to 82.12 per Australian dollar, from 82.68.
China will raise the reserve ratio requirement for the nation’s banks by 50 basis points from Nov. 29, the People’s Bank of China said on its website today.
German Prices
German producer prices gained 4.3 percent in October from a year earlier, after rising 3.9 percent in September, the Federal Statistics Office reported today. The median estimate of economists surveyed by Bloomberg was for a 4.1 percent increase.
Ireland’s central bank governor, Patrick Honohan, yesterday said he expects his nation will seek a package worth “tens of billions” of euros to help rescue banks battered by the country’s property slump. Officials of the European Union, International Monetary Fund and European Central Bank yesterday started to study the banks’ books.
“Progress towards a possible loan package for Ireland from the EU and IMF is helping to buoy market sentiment,” said Khoon Goh, market economics and strategy head at ANZ National Bank Ltd. in Wellington. “This is likely to be positive for the euro.”
The euro has gained 2 percent over the past three months in a measure of 10 developed-nation counterparts, Bloomberg Correlation-Weighted Currency Indexes show. The dollar is down 5.4 percent, while the yen has dropped 2.7 percent.
Bernanke, Dollar
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, dropped for a third straight day, losing 0.5 percent to 78.200.
Fed Chairman Bernanke took his defense of the central bank’s monetary stimulus abroad, saying it will aid the world economy, and implicitly criticized China for keeping its currency weak.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in speech to a conference in Frankfurt. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said.
Quantitative Easing
The Fed said Nov. 3 it will buy $600 billion in Treasuries to spur employment and inflation in a second round of a policy known as quantitative easing. The central bank acquired $1.7 trillion of Treasuries and mortgage debt under a previous program that ended in March.
“The dollar suffered after Bernanke’s strong reiteration of QE,” Mizuho’s Jones said. “The Fed will fulfill the program at least, and may even extend it to $1 trillion. That’s also helped the euro.”
The yen strengthened versus most higher-yielding currencies as China ordered banks to set aside larger reserves for the fifth time this year. Analysts at nine banks surveyed this week by Bloomberg said the People’s Bank of China will add to last month’s rate increase by the end of the year.
Chinese Inflation
Concern that China’s rising consumer prices, which surged the most in two years in October, will undermine the economy spurred Premier Wen Jiabao to hold a cabinet meeting on the issue this week. China Securities Journal reported today inflation in China may reach 3.8 percent in the fourth quarter, citing estimates by the State Information Center.
The dollar headed for a third weekly gain versus the yen as the U.S. economy grew at a 2.4 percent annual rate in the third quarter, compared with a 2 percent increase initially reported, according to economists surveyed by Bloomberg before the data due on Nov. 23. Treasury 10-year yields have risen eight basis points, or 0.08 percentage point, to 2.87 percent this week.
“The surprising backup in U.S. yields is putting yen under pressure,” Calvin Tse, a currency strategist in London at Morgan Stanley, wrote in a research note yesterday. “Dollar-yen has a very robust correlation with U.S. rates.”
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
