The euro rose to three-week highs versus the dollar and yen on speculation the European Central Bank will increase interest rates this week after the region rescued debt-stricken Greece from the brink of default. The shared currency gained against 12 of its 16 major counterparts after European finance ministers authorized an 8.7 billion-euro ($12.7 billion) loan payout to Greece by mid-July. Thailand’s baht rose after an election victory by allies of former premier Thaksin Shinawatra spurred optimism that foreign investors will return. Australia’s dollar weakened after reports showed retail sales and building approvals fell. “The euro may strengthen until the ECB meeting this week on the back of yield differentials,” said Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. “The market consensus now is that Greece will be bailed out, easing concerns about the debt crisis.” The euro rose to $1.4563 as of 1:10 p.m. in Tokyo from $1.4526 in New York last week, after advancing to $1.4578, the strongest since June 9. The currency climbed 0.2 percent to 117.63 yen, after appreciating to 117.74 yen, the highest since June 8. The dollar traded at 80.78 yen from 80.83 yen. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell 0.2 percent to 74.158 after sliding to 74.111, the lowest since June 10. U.S. financial markets are shut today for Independence Day. ECB Rates The ECB on July 7 will increase its benchmark rate to 1.5 percent from 1.25 percent, according to all 54 economists surveyed by Bloomberg News. The central bank will raise its target rate by 77 basis points over the next 12 months, a Credit Suisse AG index showed, compared with a prediction for 43 basis points of increases a week ago. “With further rate hikes this year not fully priced in, if this occurs, the euro may push higher following the rate hike,” Sara Yates, a London-based foreign-exchange strategist at Barclays Plc, wrote today in a note to clients. “We prefer taking a long euro position at the start of the week, but recommend that investors switch to selling rallies in the latter half of the week.” European officials agreed on July 2 to make the payout to Greece after the nation’s parliament passed austerity measures. Finance chiefs gather next week to discuss a long-term lifeline for Greece. The euro has strengthened 0.4 percent over the past week against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has dropped 1.5 percent and the dollar has weakened 1.7 percent. Baht Gains The baht strengthened against all of its major counterparts on speculation the decisive election win by Thaksin’s allies will bring stability to the nation. Clashes between his supporters and opponents have claimed more than 100 lives since the previous poll in 2007. “The majority victory is a very welcome outcome and foreign investors will come back very quickly,” said Frances Cheung, senior strategist at Credit Agricole CIB in Hong Kong. The baht rose 1.2 percent to 30.45 per dollar, after climbing to 30.41, the strongest level since June 23. Credit Agricole predicts the baht will advance to 29.20 by year-end. Aussie Weakens Australia’s dollar snapped a four-day gain after the Bureau of Statistics said retail sales fell 0.6 percent and building approvals declined 7.9 percent in May. Reserve Bank of Australia policy makers will leave the benchmark rate unchanged at 4.75 percent tomorrow, according to all 28 economists surveyed by Bloomberg News. “The reports reflect the weak spots in the economy and add to our view that the RBA will delay any rate hike till later this year,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “Retail sales is one of the critical economic releases and will add to the story that the economy is going through a soft patch, so you might see the Australian dollar sell-off further.” Australia’s currency fell 0.2 percent to $1.0747, and dropped 0.3 percent to 86.78 yen. South Korea’s won rose to the strongest in almost three years on speculation authorities will allow the currency to appreciate to combat inflation. Consumer prices climbed 4.4 percent from a year earlier in June, exceeding the central bank’s 4 percent ceiling for a sixth month. The government raised its 2011 inflation estimate by a percentage point to 4 percent last week, while trimming its economic growth forecast to 4.5 percent from 5 percent. “A mild appreciation in the won is likely to continue,” said Hwang Sun Min, Seoul-based foreign exchange trader at Kookmin Bank, South Korea’s largest lender. “Policy makers are paying close attention to high inflation as the economy is relatively resilient.” The won gained 0.3 percent to 1,063.60 per dollar, after climbing to 1,062.85, the strongest since August 2008. To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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