BLBG:Euro Snaps Three-Day Drop Before European Debt Summit; Aussie Dollar Gains
The euro ended a three-day drop versus the yen amid speculation Europe will expand funds available to the region’s most-indebted nations as leaders prepare to meet in Brussels tomorrow.
The 17-nation euro yesterday erased losses versus the dollar after the Financial Times reported that Europe may combine temporary and planned permanent rescue facilities to bolster its bailout resources. The European Central Bank is forecast to cut interest rates tomorrow. Australia’s dollar rose against most major counterparts after a report showed faster- than predicted economic growth.
“Ahead of the summit, we are seeing a certain expectation in the overall market that the European policy makers will take a step forward to resolve the debt crisis,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank. “That’s giving some support to the euro.”
The euro advanced 0.2 percent to 104.33 yen as of 1:30 p.m. Tokyo time from the close in New York yesterday, when it fell 0.1 percent. The common currency appreciated 0.2 percent to $1.3422. The dollar was unchanged at 77.73 yen.
U.S. Treasury Secretary Timothy F. Geithner yesterday backed a German-French push for closer European cooperation, urging policy makers to work with central banks to erect a “stronger firewall” to end the crisis. He welcomed “progress toward a fiscal compact for the euro zone,” echoing language used last week by ECB President Mario Draghi.
Rescue Funds
Operating the European Stability Mechanism in combination with the 440 billion-euro ($590 billion) temporary fund next year would potentially boost Europe’s anti-crisis resources to 940 billion euros. There were negotiations over pairing the two, according to two people familiar with the discussions, Bloomberg News reported on Oct. 20.
The ECB will reduce its benchmark rate to 1 percent from 1.25 percent on Dec. 8, according to the median estimate of 58 economists surveyed by Bloomberg.
ECB Governing Council member Ewald Nowotny said this week that the central bank is observing liquidity shortages in the banking sector and can do more to supply funds.
The euro will rise to $1.37 by September 2012, according to a Bloomberg News survey of analysts. It has fallen 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking the currencies of 10 developed markets. The yen has advanced 2.4 percent, the best performer, and the dollar has gained 1.9 percent over that period, the data show.
U.S. Jobs
Losses in the dollar were limited on prospects the euro area will need time to halt its crisis and while Japan’s credit rating faces the risk of a downgrade, increasing demand for the greenback as a refuge.
Takahira Ogawa, Singapore-based director of sovereign ratings at Standard & Poor’s, said last month that his company is “closer to a downgrade” of Japan’s AA- rating. Japan-based Rating & Investment Information Inc., which has rated the nation at AAA since 2000, said last week it may cut the ranking by year-end.
“The dollar would be your pick among G3 currencies now. You can’t aggressively buy the euro because of the debt crisis or the yen because of a possible downgrade of Japan’s sovereign rating,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Concern over a slowdown in the U.S. economy has receded.”
Australia’s dollar advanced on signs of a recovery in the U.S. economy and after a government report showed the South Pacific nation’s economic growth accelerated by more than economists forecast.
High-Yield Currencies
Jobless claims in the U.S. probably fell to 395,000 last week from 402,000 the prior week, economists in a Bloomberg News survey forecast before the Labor Department tomorrow.
Consumer sentiment will likely pick up this month, according to another Bloomberg survey before the preliminary Thomson Reuters/University of Michigan survey due on Dec. 9. Confidence rose to 65.8 from 64.1 at the end of November, the data is forecast to show.
“The brighter outlook for the U.S. economy is also encouraging money flow into high-yield currencies like the Aussie,” FOREX.com’s Okayasu said.
Australia’s statistics bureau said today third-quarter gross domestic product increased 1 percent from the previous three months, when it rose a revised 1.4 percent. That compared with the median of analyst estimate for a 0.8 percent gain.
“The GDP data was strong and that is bullish for the Aussie,” said Thomas Harr, head of Asian currency strategy Standard Chartered Plc in Singapore. The market may “take back some of the rate-cut expectations.”
The Reserve Bank of Australia yesterday lowered the nation’s key interest rate to 4.25 percent from 4.5 percent in its first cut at back-to-back meetings since 2009. Swaps traders are betting on at least a percentage point of reductions within 12 months, according to a Credit Suisse AG index.
The Aussie advanced 0.2 percent to 79.79 yen and $1.0265.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
