Euro Strengthens for First Time in a Month Versus Dollar on ECB Debt Moves

The euro rose against the dollar for the first week in a month as the European Central Bank moved to curb the spread of the sovereign-debt crisis and economic data in China and Europe fueled demand for higher-yielding assets.

The shared currency reversed an early-week slide as ECB President Jean-Claude Trichet extended liquidity measures and the bank bought bonds to quell concern some nations may default on their debt. Commodity-linked currencies gained, with South Africa’s rand advancing the most in nine months, as raw-material prices surged. U.S. consumer confidence is at a six-month high, a survey may show next week.

“The ECB was actually being very aggressive in the bond market,” said Matthew Strauss, senior currency strategist in Toronto at Royal Bank of Canada. “When the euro was at the $1.30 level and the market was deciding to either push it down further or let it correct, that was enough for the market.”

The euro strengthened 1.3 percent to $1.3414 yesterday, the first increase since the five days ended Nov. 5, from $1.3242 on Nov. 26. It touched $1.2969 on Nov. 30, the lowest level since Sept. 15. The shared currency fell 0.6 percent to 110.73 yen, from 111.37.

The yen gained against the dollar for the first time in five weeks, advancing 1.9 percent to 82.53, the strongest level since Nov. 15. It closed at 84.10 on Nov. 26.

Currencies linked to global growth, such as South Africa’s rand, the Norwegian krone and the Australian dollar, advanced as commodities rose. The Thomson Reuters/Jefferies CRB Index of 19 raw materials gained 5 percent for the week, the most since October 2009.

Rand Climbs

The rand appreciated 4 percent, the most since March, to 6.8760 per dollar. The krone climbed 3.4 percent to 5.9523 per greenback and the Aussie rose 3 percent to 99.31 U.S. cents.

U.S. stocks gained, with the Standard & Poor’s 500 Index increasing 3 percent, the biggest weekly jump in a month.

The euro began a three-day advance against the dollar on Dec. 1 amid speculation the ECB would take fresh steps at its meeting the next day to stem debt-crisis contagion and as data showed manufacturing expanded in China, the U.S. and Europe.

China’s factory Purchasing Managers Index climbed for a fourth month in November, according to a logistics federation report. European manufacturing expanded at the fastest pace in four months in a factory gauge of the euro area, London-based Markit Economics said, while the Institute for Supply Management’s factory index showed U.S. manufacturing accelerated for a 16th straight month.

South Korea’s won had the biggest weekly gain in two months, rising 1.9 percent to 1,138.55 per dollar.

ECB Buys Bonds

While Trichet stopped short of announcing new steps on Europe’s debt crisis, he said the ECB will keep offering banks as much money as they want at a fixed interest rate for seven days, one month and three months through the first quarter. It also continued a bond-buying program.

The bank purchased Irish, Portuguese and Greek government debt over the past two days, according to traders who asked not to be identified because the deals are confidential. An ECB spokesman declined to comment.

“The ECB purchasing debt had the biggest role in the reversal of the euro,” said John Doyle, a strategist in Washington at currency-trading firm Tempus Consulting Inc. “The underlying issues for the European sovereigns and banking sectors have not gone away, but we’ve just shifted focus.”

Dollar Index Drops

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro and yen, fell for the first time in four weeks, losing 1.5 percent to 79.150. The gauge extended its decline yesterday as data showed U.S. payrolls grew in November by less than one- third as many jobs as forecast. Employers added 39,000 positions, and the unemployment rate unexpectedly rose to 9.8 percent, from 9.6 percent.

The currencies of Canada and Mexico, which on average ship about three-quarters of their exports to the U.S., were the only major counterparts of the dollar not to rise yesterday.

“With Mexico and Canada, they are slaves to the U.S., so today is just a little bit of an adjustment,” Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut, said yesterday. “This did not sink the ship of recovery, it just slowed it down.”

The Canadian dollar still rose 1.7 percent for the week to C$1.0039, and the peso advanced 1.2 percent to 12.3369 a dollar.

The Thomson Reuters/University of Michigan index of consumer sentiment rose to 72.5 in December, the highest in six months, according to the median estimate of economists surveyed by Bloomberg News before the data is released on Dec. 10.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.