The euro gained for second day against the dollar and yen as stocks and commodities advanced on speculation the European Central Bank may announce plans tomorrow to stabilize the region’s debt markets.
The yen fell against most major peers on speculation the global economy will weather Europe’s debt crisis, allowing foreign central banks to boost interest rates to fight inflation. Federal Reserve Chairman Ben S. Bernanke said the central bank will act as needed to aid financial stability and economic growth, increasing the likelihood U.S. rates will remain at record lows.
“Right now it’s a game of tag between the euro and stocks,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates oversee $3 billion in emerging-market assets. “The ECB may make some comments to calm funding concerns. The currencies of countries with strong balance sheets are trying to stabilize. If the state of nature in the developed world is bad but not disastrous, they can rally.”
The euro strengthened 0.5 percent to $1.2027 at 1:14 p.m. in New York, from $1.1973 yesterday. It appreciated 0.4 percent to 109.89 yen, from 109.51. The dollar fell 0.1 percent to 91.35 yen, from 91.46.
The Standard & Poor’s 500 Index gained 1 percent, and crude oil for July delivery increased 3.5 percent in New York.
The Fed’s “ongoing international cooperation sends an important signal to global financial markets that we will take the actions necessary to ensure stability and continued economic recovery,” Bernanke said today in testimony at a House Budget Committee hearing.
Rate Boost in 2011
Record-low U.S. inflation and prolonged unemployment mean the Fed will hold off raising interest rates until 2011, according to economists surveyed by Bloomberg News. The benchmark rate has been at a range of zero to 0.25 percent since December 2008.
The central bank’s preferred price gauge will rise 1.1 percent this year, the smallest gain in data going back to 1960, and the jobless rate will average more than 9 percent through next year, the median estimate of 65 economists surveyed from June 2 to June 8 showed.
The euro earlier fell versus the greenback on speculation the ECB would leave interest rates unchanged and announce further measures to add liquidity to the financial markets.
“The ECB meeting will be an opportunity for it to comment on how it intends to address the deterioration in financial market conditions and economic outlook,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “You have a nontrivial possibility of further liquidity provisions.”
ECB Rate Forecast
Economists surveyed by Bloomberg forecast the ECB will leave its key interest rate at a record low 1 percent until the second quarter of 2011.
Sweden’s krona appreciated 0.9 percent to 7.9861 per dollar as Swedish industrial production rose the most in more than three years, boosting speculation the nation’s central bank will raise interest rates next month.
Seasonally adjusted factory output grew an annual 7.3 percent in April after rising a revised 6.8 percent the previous month, Stockholm-based Statistics Sweden said in a statement on its website today.
“Next month’s rate decision is a close call, but we see Sweden as among the short list of candidates to initiate a tightening cycle in the coming period,” Brown Brothers Harriman & Co. strategists wrote in a note to clients.
The odds of Sweden’s Riksbank raising interest rates at least 0.25 percentage point on July 1 rose to 79 percent today, from 57 percent a month ago, according to Credit Suisse data.
Brazil’s currency rose versus the greenback on speculation the nation’s central bank will raise rates after the economy grew at its fastest annual rate since 1995, 9 percent, in the first quarter. The real gained 0.7 percent to 1.8420 per dollar.
Brazilian central bank President Henrique Meirelles will increase the benchmark Selic rate 75 basis points to 10.25 percent, according to economists surveyed by Bloomberg.
“Most commentators believe that Brazil is starting to overheat and the central bank has to act quickly,” Simon Smollet, a London-based strategist at Credit Agricole SA, wrote in a note to clients.
New Zealand’s dollar rose against half of its 16 most- traded counterparts on speculation the nation’s central bank will raise its benchmark interest rate tomorrow for the first time in three years, judging that inflation poses a bigger risk to the economy than any fallout from Europe’s debt crisis.
Bank Governor Alan Bollard will increase the official cash rate to 2.75 percent from a record-low 2.5 percent, according to 13 of 15 economists in a Bloomberg News survey. The decision is due tomorrow in Wellington.
“We believe it will mark the beginning of a series of rate hikes,” Danske Bank A/S analysts including Sverre Holbek in Copenhagen wrote in a note to clients recommending the purchase of New Zealand dollar options before the announcement.