Euro Rises From 10-Month Low on Trichet’s Collateral Extension

March 25 (Bloomberg) -- The euro rose from a 10-month low against the dollar after European Central Bank President Jean- Claude Trichet said policy makers will extend their emergency collateral rules beyond 2010.

The 16-nation currency advanced before a meeting today of European Union leaders in Brussels at which they will try to help Greece contain its budget deficit, the region’s largest. Sterling appreciated for the first time in three days against the dollar after a report showed retail sales jumped last month more than economists forecast.

“Trichet’s comments reduced some of the market’s jitters,” said Hans-Guenter Redeker, global head of foreign- exchange strategy at BNP Paribas SA in London. “There’s a bit of profit taking” in the dollar after yesterday’s gain against the euro, he said.

The euro increased 0.4 percent to $1.3362 at 7:52 a.m. in New York, from $1.3315 yesterday, after earlier falling to $1.3284, the lowest level since May 7. The euro was little changed at 123.07 yen, compared with 122.89. The dollar decreased 0.2 percent to 92.11 yen, from 92.30.

The ECB initially loosened its collateral rules as a way of helping banks obtain liquidity as the global financial crisis prompted them to halt lending to each other.

Sterling advanced 0.7 percent to $1.4966 and strengthened 0.4 percent to 89.21 pence per euro after the Office for National Statistics said the U.K.’s retail sales rose 2.1 percent from January, when they slumped 3 percent. The median forecast of 22 economists in a Bloomberg News survey was for an increase of 0.8 percent.

Meister on Greece

The euro slid earlier against the dollar after Michael Meister, a spokesman for Germany’s ruling Christian Democratic Union party, told the French daily newspaper Les Echos that only the International Monetary Fund can help Greece.

Rapid aid for Greece from European countries would destabilize the euro area in the long term, Les Echos quoted Meister as saying. He supports a European monetary fund to handle such problems in the future, the paper reported.

Goldman Sachs Group Inc. exited a bet that the euro would strengthen against the dollar after the trade lost 2.8 percent.

“We have clearly underestimated the impact on the euro from the European sovereign crisis and perhaps also from the broader macroadjustment that it portends,” five analysts including Thomas Stolper, London-based economist at Goldman Sachs, wrote in an e-mail message to Bloomberg News today. “These political headwinds currently matter far more for the euro than the cyclical factors.”

Euro Versus Franc

The euro traded near a record low against the Swiss franc after Fitch Ratings yesterday cut Portugal’s credit rating, fueling speculation that other European nations will face similar downgrades as the Greek crisis spreads.

The single currency fetched 1.4279 francs, compared with 1.4285 yesterday, when it fell to the record low of 1.4233.

Fitch lowered Portugal’s credit rating by one step to AA- with a “negative” outlook. The nation’s gross domestic product is “significantly below” what is typical for an AA country, Fitch said.

The yen rose from a 10-week low against the dollar on speculation Japanese exporters took advantage of the currency’s biggest slide since December to bring home funds before the nation’s fiscal year ends next week.

Japan’s large manufacturers expect the currency to average 91.16 per dollar in the six months to March 2010, according to the Bank of Japan’s Tankan survey.

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies including the euro, yen and pound, gained as much as 0.3 percent to 82.062, the highest level since May 20, before slipping to 81.626.

Futures on the CME Group Inc. exchange showed a 60 percent chance the Federal Reserve will raise its target rate for overnight bank loans by at least a quarter-percentage point by its November meeting, compared with 49 percent odds a month ago.

U.S. first-time jobless applications dropped by 7,000 to 450,000 in the week ended March 20, according to the median forecast of 43 economists in a Bloomberg News survey. The report from the Labor Department is due at 8:30 a.m. in Washington.

The Australian dollar rose after yesterday’s biggest drop in seven weeks as a central bank official said benchmark borrowing costs need to climb toward “normal levels” to contain inflation.

Reserve Bank of Australia Assistant Governor Philip Lowe’s comments “reinforce that Australia is in a strong position economically and there continue to be inflationary price movements,” said Timothy Connors, head of currencies at Custom House Global Foreign Exchange in Sydney. “We’ve seen a nice rally from the lows on the back of those comments.”

Australia’s currency climbed 0.5 percent to 91.20 U.S. cents after earlier falling to 90.66 cents, the lowest level since March 9.

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net