BLBG:Euro Strengthens Most In Six Months On Spanish Bailout
The euro climbed the most in six months against the dollar after Spain requested a bailout loan, following weeks of escalating concern that bad loans at the nation’s lenders might overwhelm its public finances.
The 17-nation currency rose to a two-week high after Spain asked for as much as 100 billion euros ($126 billion) to save its banking system, making it the fourth member in the currency bloc to seek a rescue. It pared its gains as data showed the Italian economy contracted for a third quarter. The dollar and yen fell on decreased demand for refuge assets as shares rallied. Norway’s krone strengthened versus the dollar as consumer prices rose more than estimated last month.
“The euro has seen a bit of lift” from the bailout, said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There are still plenty of risks out there as far as the euro is concerned so it’s still a case of markets looking to sell on rallies.”
The euro strengthened 0.4 percent to $1.2567 at 11:11 a.m. London time. It earlier climbed as much as 1.2 percent to $1.2671, the highest since May 23. That’s the biggest intraday advance since Nov. 30. The euro jumped 0.3 percent to 99.78 yen. The dollar was little changed at 79.38 yen.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, slid 0.4 percent to 81.124 as demand for safer assets waned.
Stocks Gain
The Stoxx Europe 600 Index of shares gained 1.4 percent and the MSCI Asia Pacific Index advanced 1.9 percent. Oil rose the most in more than five months in New York on speculation fuel demand will increase.
Seven months after winning a landslide victory, Spanish Prime Minister Mariano Rajoy was forced to abandon his bid to recapitalize banks without external help. The bailout loan will be channeled through the state’s bank-rescue fund, known as FROB, and extended to lenders that need it, Economy Minister Luis de Guindos said in Madrid on June 9.
The euro may extend gains to $1.2786, the 50 percent retracement of its decline from the May 1 high to the June 1 low, said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender, citing Fibonacci analysis.
Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.
The current rebound is seen as “correcting that very large decline in May,” he said. “The most common corrections of these big moves are around half.”
‘Positive Catalyst’
Futures traders had increased their bearish bets on the euro to an unprecedented level, according to figures from the Washington-based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro, so-called net shorts, compared with those on a gain was 214,418 on June 5, the most on record going back to 1999.
“The positive catalyst for the euro has come when there was a substantial amount of short positions,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co., a unit in Tokyo of Japan’s third-largest bank by market value. “These risk-off positions are likely to be unwound.”
The European currency has fallen 3.8 percent in the past six months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 3.2 percent and the yen is 0.7 percent stronger.
Growth Outlook
Italy’s economy, the third-biggest in the region, shrank 0.8 percent in the first three months of this year from the fourth quarter, Istat, the Rome-based national statistics institute said, confirming an initial estimate. Household spending decreased 1 percent and exports fell 0.6 percent.
“The growth outlook for most of the euro area is already bleak,” Guillermo Felices, head of European currency strategy in London at Barclays Plc, and Yuki Sakasai, a New York-based currency strategist, wrote in a research note. “Without growth, the euro will remain under pressure.”
Norway’s krone strengthened against the dollar as data showed underlying consumer prices rose 1.4 percent in May from a year earlier, compared with a 1.1 percent median estimate in a Bloomberg survey of nine economists.
The krone rose 0.5 percent to 6.0151 per dollar and was little changed versus the euro at 7.5794.
The Swedish krona also surged against the U.S. currency, boosted by gains in equity markets. It jumped 0.8 percent to 7.0722 versus the dollar, a fourth consecutive daily advance.
Stiglitz Prediction
The euro has dropped about 5 percent against the greenback since the start of May amid concern Greece will leave the common currency. The nation is scheduled to hold elections on June 17 after the previous vote last month failed to produce a viable governing majority.
Rather than a euro failure, an orderly Greek exit from the currency bloc has Nobel laureate Joseph Stiglitz and Nomura Holdings Inc. chief strategist Jens Nordvig predicting a stronger and more stable monetary union.
The nation accounts for just 2.3 percent of the 17-nation trading bloc’s gross domestic product. It also has 356 billion euros, or 4.3 percent of the region’s total debt, according to data compiled by Bloomberg. The area’s trade deficit last year would have been a surplus without its weakest member, according to European Union data.
To contact the reporters on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
