Euro Rises to Two-Week High Versus Dollar as Greece’s Bailout Terms Ease
Stocks, Euro Rise on Europe Debt Plan
Chris Ratcliffe/Bloomberg
Stocks and the euro rallied, erasing earlier losses, amid reports that European Union officials have come up with a plan to recapitalize struggling banks and halt a surge in bond yields.
Stocks and the euro rallied, erasing earlier losses, amid reports that European Union officials have come up with a plan to recapitalize struggling banks and halt a surge in bond yields. Photographer: Chris Ratcliffe/Bloomberg
July 21 (Bloomberg) -- Adarsh Sinha, head of strategy for Group of 10 foreign exchange at Bank of America Merrill Lynch, talks about the outlook for global currencies. Sinha speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)
July 21 (Bloomberg) -- Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole SA, discusses talks by euro-area leaders to resolve the 21-month sovereign debt crisis. Maher, speaking on Bloomberg Television's "InBusiness With Margaret Brennan," also talks about investment strategy and the outlook for U.S. debt-ceiling negotiations. (Source: Bloomberg)
July 21 (Bloomberg) -- Jens Nordvig, a managing director of currency research at Nomura Holdings Inc., talks about the euro and the European Union's summit today on containing the sovereign-debt crisis. Nordvig speaks with Carol Massar and Sara Eisen on Bloomberg Television's "In the Loop." (Source: Bloomberg)
The euro advanced to the highest level in two weeks against the dollar as European officials eased the terms of loans for cash-strapped nations and expanded aid for Greece, reducing contagion concern.
The dollar dropped to its lowest level against the yen since March as White House spokesman Jay Carney and House Speaker John Boehner said there is no deal on raising the U.S. debt limit. The Swiss franc fell against most of its major counterparts on reduced safety demand as leaders agreed to guarantee Greek bonds in money market operations if a bailout agreement triggers a default.
“There’s enough good news in here to justify the rally that we’ve had today,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. “They’ve brought it back from going down one of the worst-case- scenario paths, but we’re not fully out of the woods yet.”
The euro gained 1.5 percent to $1.4425 at 5 p.m. in New York, from $1.4215 yesterday, after touching $1.4435, the highest level since July 6. The euro climbed 0.9 percent to 112.94 yen, from 111.99. The dollar dropped 0.6 percent to 78.30 yen and touched 78.29, the lowest level since the Group of Seven intervened to weaken the currency following the March 11 earthquake and tsunami.
Sarkozy on Euro
French President Nicolas Sarkozy reiterated support for the euro after the summit closed, saying it’s an “irreplaceable” achievement of Europe. He compared the transformation of the bailout to the creation of a “European Monetary Fund.”
The Swiss franc, considered a haven in times of financial turmoil, declined 0.9 percent to 1.1756 versus the euro, compared with the record high 1.1374 reached July 18. The franc gained 0.6 percent to 81.52 centimes versus the dollar.
Treasury 10-year notes fell, pushing the yield up nine basis points, or 0.09 percentage point, to 3.01 percent on reduced demand for a refuge in U.S. government debt. The Standard & Poor’s 500 Index gained 1.4 percent.
The region’s 440 billion euro ($633 billion) European Financial Stability Facility will operate in the secondary markets, aid troubled banks and offer credit lines, European Union leaders said today after the summit.
“The EFSF coming into the secondary market will mean a tightening of yields between the periphery and core,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London. “It will also mean that the ability of the market to push yields to the level where the deficit in a country becomes unsustainable is greatly reduced. Countries don’t have to fight against a giant.”
Spanish Bonds
Yields on 10-year Spanish bonds dropped 25 basis points to 5.73 percent after reaching 6.368 percent on July 18, the highest level since 1997. The Italian 10-year bond yields fell 26 basis points to 5.34 percent, narrowing the yield spread with bunds. Greek notes of the same maturity decreased 85 basis points to 16.49 percent.
Leaders pledged a total 160 billion euro aid package for Greece, paid in part by private bondholders, and eased the terms of its loans. Similar provisions will be made to the loans of Portugal and Ireland, they said.
Intercontinental Exchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped as much as 1.2 percent to 73.889, the lowest level since June 9.
Reports ‘False’
Carney, the White House spokesman, and Boehner responded to a New York Times story today that the two sides were close to a major deal. Boehner, an Ohio Republican, said in a Twitter message that reports of a deal were “false.” Office of Management and Budget Director Jack Lew, leaving a briefing with Senate Democrats, said, “There is no agreement.”
A bipartisan group of senators called the Gang of Six outlined a $3.7 trillion deficit-reduction plan, which Obama embraced this week. Some Republicans have endorsed it or signaled openness to considering it.
Norway’s krone gained 1.8 percent to 5.3987 versus the greenback as crude oil rose, while Canada’s dollar appreciated 0.4 percent to 94.33 cents versus the U.S. currency after touching 94.23 cents, the strongest level since November 2007. Crude oil for September delivery climbed 1 percent to $99.13 a barrel in New York trading.
China should let the yuan gain to boost demand and global economic stability, according to the International Monetary Fund, citing the risk that growth shocks in the country will hurt the world.
Currency appreciation combined with reforms to rebalance the Chinese economy “would yield substantial benefits,” the fund said in a statement yesterday in Washington. A “major disruption in China’s so-far steady growth would have material adverse consequences,” IMF directors said.
China disputed the assessment as the currency rose today in Shanghai to 6.4509, a 17-year high, on the sixth anniversary of the scrapping of a peg to the dollar.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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