BLBG:Euro Weakens as Germany Rejects Combining Rescue Funds; Aussie Strengthens
The euro declined against the dollar and the yen, reversing gains, after a German government official said the nation rejects proposals to combine current and permanent euro-area rescue funds.
The Dollar Index rose for the first time in three days before European leaders gather for a summit in Brussels on Dec. 8-9. Economists predict the European Central Bank will cut its benchmark interest rate at a policy meeting tomorrow. The Australian dollar rose after a report showed gross domestic product grew faster than economists forecast last quarter
“The euro has come back under some pressure after the reports of a German official dampening down expectations of an agreement on the rescue fund coming out of the EU summit,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London.
The euro weakened 0.2 percent to $1.3377 at 7:03 a.m. in New York after rising as much as 0.4 percent. The 17-nation currency fell 0.2 percent to 104 yen. The Japanese currency was little changed at 77.75 per dollar.
Germany rejects proposals to combine the current and permanent euro-area rescue funds, the government official told reporters in Berlin today on condition of anonymity because the negotiations are private.
The official’s comments came after the Financial Times reported yesterday that EU leaders may agree on a package including the existing 440 billion euro bailout fund and a new 500 billion euro facility. There were negotiations over pairing the two, according to two people familiar with the discussions, Bloomberg News reported on Oct. 20.
Euro’s Decline
The single currency has fallen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking 10 developed-nation currencies. The yen has advanced 2.5 percent, the best performance, and the dollar has strengthened 2.1 percent.
The ECB will reduce its benchmark rate to 1 percent from 1.25 percent tomorrow, according to the median estimate of economists surveyed by Bloomberg News.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, advanced 0.2 percent to 79.615.
The Australian dollar strengthened after the Bureau of Statistics said the economy expanded 1 percent in the three months ended Sept. 30, after growing a revised 1.4 percent in the prior quarter, the fastest pace in four years.
Swaps traders are betting the central bank will cut interest rates by at least one percentage point over the next 12 months, according to a Credit Suisse AG index.
“The GDP data was strong and that is bullish for the Aussie,” said Thomas Harr, head of Asian currency strategy at Standard Chartered Plc in Singapore. The market may “take back some of the rate-cut expectations.”
The Aussie advanced 0.2 percent to $1.0269, and gained 0.3 percent to 79.83 yen.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
