BLBG:Euro Rises as German Lawmakers Vote to Approve Expansion of Bailout Fund
The euro rose toward a one-week high versus the dollar as Germany’s lower house of parliament approved the expansion of a bailout fund for debt-stricken euro- area nations to help contain the sovereign-debt crisis.
The 17-nation currency strengthened against 14 of 16 major counterparts as the vote frees the way for European officials to focus on what next steps may be needed to stem the debt crisis. The yen weakened as U.S. equity futures rose, spurring demand for higher-yielding assets. South Korea’s won declined after the nation’s current-account surplus shrank.
“Although it was expected that the German vote would go through, a negative outcome would have been taken very badly by the market,” said Audrey Childe-Freeman, global head of currency strategy in London at the private-banking unit of JPMorgan Chase & Co.. “At the margins this is euro positive.”
The euro gained 0.5 percent to $1.3611 at 7:22 a.m. in New York after rising to $1.3690 yesterday, the strongest since Sept. 21. The currency appreciated 0.5 percent to 104.30 yen. The yen was little changed at 76.62 per dollar.
Childe-Freeman expects the euro to continue its “remarkable resilience” until year-end when it is likely to trade at about $1.38, she said.
Lawmakers in the Bundestag voted 523 in favor of legislation aimed at expanding the powers of the EFSF while 85 voted against the measures and three abstained. The legislation is set to be debated and put to a non-binding vote in the upper house, or Bundesrat, tomorrow.
Global Poll
The vote in Berlin on changes to the EFSF allows the fund to buy the bonds of distressed member states and offer emergency loans to governments, raising Germany’s guarantees to 211 billion euros from 123 billion euros.
“The German talk about the euro zone is becoming a bit more positive, which reduces the risk of a disorderly breakup,” said Adrian Schmidt, a currency strategist at Lloyds Bank Corporate Markets in London. “That suggests an upside bias for the euro.”
Schmidt said he is “generally more positive” on the euro and estimates the currency will end 2011 at about $1.40. It may still fall to as low as $1.32 before year-end, he said.
About 93 percent of investors expect Greece to eventually default, according to the quarterly Global Poll of 1,031 Bloomberg subscribers. Forty percent see the currency bloc losing at least one member in the next year.
Default Risk
Futures on the Standard & Poor’s 500 Index gained 0.5 percent. Europe’s benchmark Stoxx Europe 600 Index were 0.2 percent lower after earlier declining as much as 0.7 percent.
Gains in the euro were tempered after Italy’s borrowing costs rose at a government debt sale today. Italy’s five-year credit-default swaps were at 472 basis points today, showing traders see a 34 percent chance for the nation’s nonpayment, compared with 4.6 percent for the U.S.
Kokusai Global Sovereign Open, Japan’s biggest mutual fund by assets, reduced its holdings of Italian bonds to 7.5 percent of its 2.1 trillion-yen portfolio from 12.3 percent in July, a report for customers of the fund showed on Sept. 26. The asset manager “considered the possibility that Europe’s debt problems will last longer,” according to the report.
The yen weakened against most of its major peers as the MSCI Asia Pacific Index of shares rose 0.3 percent, reversing a decline of as much as 1.3 percent. The yen has gained 11.6 percent in the past three months, the best performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has advanced 5.4 percent while the euro has lost 1.2 percent.
European Drag
Europe’s debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday. “In Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” he said.
The U.S. economy expanded at a 1.2 percent annual rate in the second quarter, revised figures from the Commerce Department may show today, according to a Bloomberg News survey of economists. While that compares with the 1 percent pace reported last month, it’s less than a third of the growth a year earlier.
The won snapped a two-day gain versus the dollar after a report showed the current-account surplus narrowed in August, dimming the growth outlook for Korea’s export-led economy.
The surplus was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said today.
“The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy,” said Jeon Seung Ji, a currency analyst at Samsung Futures Inc. in Seoul.
The won fell 0.3 percent to 1,173.70 per dollar.
To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net;
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
