BLBG:Euro Pares Advance Amid Wagers Progress on Debt Crisis Will Stay Elusive
The euro pared gains versus the dollar and yen as concern increased that European leaders will struggle to resolve the region’s debt crisis even after central banks moved to ease dollar borrowing for banks.
The 17-nation currency had the biggest intraday jump yesterday against the greenback since October after six central banks led by the Federal Reserve lowered the premium for lenders to borrow dollars overnight. Australia’s currency fell on bets the central bank may cut interest rates. The Dollar Index stayed lower after a report showed U.S. manufacturing expanded.
“Although the knee-jerk move has been to buy risk and buy the euro, the pressure will remain, as there is no silver bullet or bazooka yet in sight,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The question is, can the European leaders form a plan that can provide relief for the market and is credible in solving the euro area debt issue?”
The euro appreciated 0.1 percent to $1.3461 at 5 p.m. in New York after surging as much as 1.6 percent yesterday, the most on an intraday basis since Oct. 27. It gained earlier today as much as 0.6 percent. The shared currency rose 0.2 percent to 104.60 yen and touched 105.06 yen, the strongest level since Nov. 15. The yen fell 0.1 percent to 77.70 per dollar.
The Standard & Poor’s Index (SPX) declined 0.2 percent after capping a three-day gain of 7.6 percent yesterday, the biggest since March 2009.
Swiss Franc
The franc fell the most in almost a week against the euro a day after Switzerland said it may consider more steps to support the nation’s central bank in its fight against currency gains. The measures, which could include negative interest rates, would help prop up the Swiss National Bank’s successful defense of a 1.20 ceiling versus the euro since Sept. 6.
The franc depreciated as much as 0.7 percent, the most since Nov. 25, to 1.2394 per euro today, before trading 0.4 percent weaker at 1.2324.
The Fed said yesterday it had agreed with the central banks of Europe, Canada, Switzerland, the U.K. and Japan to reduce the premium to borrow dollars overnight by half a percentage point to 50 basis points. The so-called dollar swap lines will be extended by six months to Feb. 1, 2013.
The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, fell for a second day, shrinking to 1.21 percentage points below the euro interbank offered rate. It touched 1.63 percentage points before the central banks’ announcement yesterday, the most expensive level on an intraday basis since October 2008. The average this year is 0.54 percentage point.
‘Mounting Concern’
The European Central Bank holds its next policy meeting on Dec. 8. European heads of government will meet the following day in Brussels.
“The overall trend is still one for the downside in the euro, based on mounting concern about whether or not the Europeans can get a hand on the crisis,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage.
German Chancellor Angela Merkel is set to snub investor pleas to back an expanded ECB role in solving the debt crisis as she pushes her demand for tighter economic ties in Europe as the only way forward.
In the days before a speech to German lawmakers tomorrow outlining her stance for the Dec. 9 summit, Merkel has repeated her call to rework European Union rules to lock in budget monitoring and enforcement and seal off the ECB from political pressure. That risks a showdown with fellow EU leaders and extends her conflict with financial markets looking for immediate measures to end contagion.
‘Disaster’ for France
The demise of the euro would be a “disaster” for France by making its debt “unmanageable,” President Nicolas Sarkozy said. France “would be paying a debt denominated in a strong euro with a weakened currency,” he said in a speech in Toulon.
IntercontinentalExchange Inc.’s Dollar Index (DXY), which tracks the U.S. currency against those of six major U.S. trading partners, fell for a fourth day, the longest losing stretch since October. It declined 0.1 percent to 78.294.
The Institute for Supply Management’s factory index, a gauge of U.S. manufacturing, increased to 52.7 in November from 50.8 a month earlier, data showed today. Fifty is the dividing line between growth and contraction in the Tempe, Arizona-based group’s gauge, and economists surveyed by Bloomberg News estimated the reading would rise to 51.8.
U.S. employers added 125,000 workers last month after hiring 80,000 in October, a separate survey showed before Labor Department data due tomorrow.
‘More Solid’
“The U.S. data has been a little bit more solid recently,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “We know there’s widespread weakness in many parts of the world, and that’s definitely a concern, but the one modest bright spot is the U.S. economy for the time being.”
Consumer confidence jumped to 56 in November from 40.9 the previous month, the biggest monthly gain since April 2003, the Conference Board reported Nov. 29. Retail sales rose 0.5 percent in October, more than forecast, Commerce Department figures showed Nov. 15.
Australia’s dollar and Norway’s krone were the biggest losers among the dollar’s 16 most-traded counterparts.
The Aussie slid as signs Australia’s economy is slowing fueled speculation the Reserve Bank will cut rates. Data showed the number of building permits fell 10.7 percent in October and growth in retail sales slowed to 0.2 percent. The currency fell 0.4 percent to $1.0244 and declined 0.3 percent to 79.59 yen.
The krone dropped 0.7 percent to 5.8088 per dollar.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
