Euro Rises as Italy Austerity Vote Adds to Region’s Debt Crisis Progress
The euro rose against the dollar, snapping the longest losing streak since April 2010, after Italian Prime Minister Silvio Berlusconi won a confidence vote on austerity measures, adding to progress in addressing the region’s debt crisis.
The Dollar Index declined as the Federal Reserve said its Beige Book survey found the economy grew at a slower pace in some regions of the country. Norway’s krone reached an eight- year high against the euro and the Swedish krona advanced as investors sought alternatives to the Swiss franc. The euro rose earlier versus most its major counterparts after Germany’s top court rejected constitutional challenges to the nation’s participation in the region’s rescue funds.
“Berlusconi got approval for his austerity package, which resulted in a lift in the euro-dollar,” said Kathy Lien, director of research in New York at online currency trader GFT Forex. “The fact we’ve had some good news gives the European Central Bank less reason to turn dovish and that’s going to help the euro-dollar.”
The 17-nation euro strengthened 0.7 percent to $1.4098 at 5 p.m. in New York. It added 0.2 percent to 108.90 yen. The U.S. currency dropped 0.5 percent to 77.26 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, slid 0.7 percent to 75.423, after dropping 1 percent, the most on an intraday drop since Aug. 15.
The Standard & Poor’s 500 Index gained 2.9 percent. Treasury 10-year note yields rose six basis points to 2.04 percent after reaching a record low yesterday.
“Some of the news flow this morning is positive, given the treacherous backdrop that we’ve had over the past couple of days,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. “Currencies are currently being dominated by stocks.”
The Italian Senate approved Berlusconi’s revised austerity plan, setting up a final vote in the Chamber of Deputies as Italy seeks to stem surging bond yields. The vote took place as protesters hurled smoke bombs and firecrackers amid a heavy police presence outside the Senate building, a day after thousands of Italians protested in a general strike against the measures.
The Swiss franc rose 0.2 percent to 1.20893 per euro, after its biggest intraday loss ever against the 17-nation currency yesterday. The currency strengthened 0.5 percent to 85.75 centimes per dollar after falling as much as 8.8 percent yesterday.
The Swiss National Bank said yesterday it will “no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and that it’s “aiming for a substantial and sustained weakening of the franc.” The Swiss currency slid a record 8.7 percent against the euro after the announcement.
“In light of the move of the SNB to intervene against Swiss, the number of available safe havens has diminished, and that is a negative for the euro against other currencies,” said Aroop Chatterjee, a currency strategist in New York at Barclays Plc in New York. “Investors will be looking to sell the euro against the dollar and the more stable European currencies such as the Norwegian krone and Swedish krona. This explains why the euro has been underperforming while the dollar has sold off.”
Sweden’s krona appreciated against the euro and the dollar after the central bank said it only “slightly” cut its guidance for future increases in interest rates while signaling it may raise the benchmark next quarter. The largest Nordic economy, which relies on exports for half its output, has seen global recovery prospects deteriorate.
The krona appreciated 0.9 percent to 8.9706 per euro and strengthened 1.6 percent against the dollar to 6.3625.
Norway’s krone rose 0.4 percent to 5.3853 per dollar and gained as much as 1.1 percent to 7.4887 versus the euro, the strongest since February 2003.
Germany’s Federal Constitutional Court in Karlsruhe today threw out suits targeting the nation’s share of the 110 billion euros ($154 billion) in loans for Greece from euro-region governments and the International Monetary Fund as well as a separate 750-billion-euro rescue fund approved last year to halt the spread of Greece’s debt crisis.
German Chancellor Angela Merkel pledged last week to consult lawmakers as much as they felt necessary as her Cabinet agreed on a reworked European Financial Stability Facility that will raise Germany’s share of European Financial Stability Facility loan guarantees to 211 billion euros.
“A lot of people in the euro zone that have been buying the Swiss franc linked to the European tensions are mainly interested in something that is quite close regionally, easily accessible and it’s about wealth preservation rather than currency appreciation,” said Thomas Stolper, chief foreign exchange strategist in London at Goldman Sachs Group Inc., in a conference call today. “If you buy the franc at 1.20 and the SNB makes a commitment to keep it at that level it doesn’t change the safe-haven function of the currency.”
The yen rose against the majority of its major counterparts after the Bank of Japan kept monetary policy unchanged today and said it would gauge the effects of adding 10 trillion yen ($130 billion) stimulus last month on the yen near a postwar high.
The U.S. currency depreciated against most of its 16 most- traded counterparts amid speculation Fed Chairman Ben S. Bernanke will signal more monetary easing in a speech tomorrow. The Federal Open Market Committee will gather for a two-day meeting on Sept. 20.
“Economic activity continued to expand at a modest pace, though some districts noted mixed or weakening activity,” the Fed said in its Beige Book survey released today in Washington.
Canada’s dollar remained higher against its U.S. counterpart after the Bank of Canada kept its main interest rate unchanged and said there’s a “diminished” need for a rate increase.
The Canadian currency gained 0.7 percent to 98.33 cents per U.S. dollar from 99.05 cents. It touched 99.66 cents yesterday, the weakest since Aug. 11.
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