BLBG:Euro Strengthens Versus Dollar Before Merkel, Sarkozy Discuss Rescue Plan
The euro strengthened against the dollar for the first time in four days as the leaders of Germany and France meet to craft a plan for rescuing the 17-nation common currency.
The euro advanced against all but one of its 16 biggest peers, after earlier reaching an 11-year low against the yen. German Chancellor Angela Merkel and French President Nicolas Sarkozy gather in Berlin today to flesh out a new rulebook for fiscal discipline negotiated at a Dec. 9 summit that seeks to create a “fiscal compact” for the euro area. Futures traders’ bets that the euro will decline against the dollar reached a record.
“It looks like it’s a bit of a relief rally,” said Chris Walker, a currency strategist at UBS AG in London. “The euro’s picked up as traders don’t want to be caught short ahead of the Sarkozy-Merkel meeting. We’re not looking for any new policy to be announced today, but there’s still some headline risk out there.”
The shared currency advanced 0.5 percent to $1.2781 at 10:35 a.m. London time, after earlier falling to $1.2666, its weakest level since September 2010. The euro was 0.3 percent stronger at 98.18 yen after dropping to 97.28, the least since December 2000. The dollar was 0.2 percent weaker at 76.82 yen.
Japan’s markets are closed today for a public holiday.
Futures Trades
Futures traders increased their bets to a record high that the euro will decline against the dollar. The difference between wagers that the shared currency would fall versus those that it would rise -- so-called net shorts -- surged to 138,909 in the week ended Jan. 3, according to data from the Commodity Futures Trading Commission.
The euro weakened earlier ahead of a report that economists say will show industrial production in Germany, Europe’s biggest economy, declined in November.
German industrial production (GRIPIMOM) probably dropped 0.5 percent in November after an 0.8 percent increase the previous month, the median estimate of economists surveyed by Bloomberg News showed before the figures are released today. That would be the first slide (GRIPIMOM) since September.
“We’re going to see more ongoing political noise and that’s really just a distraction from the bigger driver of the euro, which is the relatively weak growth outlook,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “As long as European growth underwhelms, the euro will continue to underperform the U.S. dollar, yen and probably also the rest of the major currencies.”
Bond Sales
Spain is scheduled to sell bonds due in 2015 and 2016 on Jan. 12. Italy will auction securities on the same day and on Jan. 13. Spain’s 10-year bond yield (GSPG10YR) dropped six basis points, or 0.06 percentage point, to 5.64 percent, while the rate on similar-maturity Italian debt (GBTPGR10) was four basis points lower at 7.09 percent, above the 7 percent threshold that led Greece, Portugal and Ireland to seek bailouts.
“There is legitimate concern over the path to sustainable sovereign debt levels,” Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney, wrote in a report today. “With the U.S. data improving, and the European numbers still soft, the euro is likely to continue its steady underperformance.”
The dollar gained 0.5 percent in the past week, the third- best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Dollar Index
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent today to 80.984 after rising earlier to 81.503 on Jan. 6, the highest level since Sept. 20, 2010.
Figures from the Labor Department on Jan. 6 showed payrolls in the U.S. climbed by 200,000 last month following a revised 100,000 gain in November. The jobless rate (USURTOT) unexpectedly fell to 8.5 percent, the lowest level since February 2009.
Confidence (SBOITOTL) among U.S. small companies rose in December for a fourth month, economists in a Bloomberg News survey predicted before tomorrow’s report. The National Federation of Independent Business’s index probably climbed to 94, the highest level since February 2011, from November’s 92, according to the survey’s median forecast.
“The correlation between good U.S. data equaling a weak dollar is beginning to break down now that we’re seeing signs of a more sustained recovery in the U.S.,” said Bank of New Zealand’s Jones. “There’s a clear fundamental shift in favor of the U.S. dollar.”
Australian Sales
The Australian dollar weakened after a report from the statistics bureau showed retail sales (AURSTSA) were unchanged in November. Economists surveyed by Bloomberg had predicted a gain of 0.4 percent.
“The past six months have been an important reminder that small open economies such as Australia are not immune to the broader global business cycle,” Robert Mead, the head of portfolio management in Australia at Pimco, manager of the world’s biggest bond fund, wrote in an e-mailed report today. Pimco predicts further interest-rate cuts from the Reserve Bank of Australia this year.
The Australian currency lost as much as 0.8 percent to $1.0146, the lowest level since Dec. 30, before trading little changed at $1.0230.
To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net: Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
