Euro Advances Before G-7 Officials Discuss Debt Crisis

The euro rose for a third day before finance ministers and central bank governors from the Group of Seven nations hold a call today to discuss Europe’s debt crisis.

The yen and dollar fell against most major counterparts as Asian stocks rallied, sapping demand for lower-yielding assets. Australia’s dollar advanced after the Reserve Bank cut benchmark borrowing costs by a quarter percentage point, less than swap rates had indicated.

“The G-7 call is likely to touch on the ongoing euro debt crisis,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s a bit of short-covering in the euro for now, in case there are any new measures coming out from the euro zone. But it’s still a sell on rallies.” Short covering is when investors end bets an asset will decline.

Europe’s shared currency strengthened 0.2 percent to $1.2518 as of 6:57 a.m. in London from $1.2499 at the close in New York yesterday, extending its advance to the longest stretch of daily gains since April 27. The 17-nation euro added 0.3 percent to 98.20 yen. Japan’s currency slipped 0.1 percent to 78.44 per dollar. The Australian dollar rose 0.7 percent to 97.93 U.S. cents.

The MSCI Asia Pacific Index of shares climbed 1.5 percent, rallying from four days of declines.

Canadian Finance Minister Jim Flaherty said officials from the G-7 and the Group of 20 have been holding discussions on the European crisis ahead of a summit of G-20 leaders later this month.

European Debt Crisis

Markets have been bracing for further deterioration in Spain’s finance sector and a possible Greek departure from the euro as Europe’s leaders continued to wrangle over how to support the currency bloc. President Barack Obama meanwhile laid the blame for sluggish U.S. employment at the feet of euro-area leaders, saying they haven’t done enough to resolve the crisis, now in its third year.

Demand for the common currency was limited before data forecast to show the region’s retail sales declined in April.

Sales probably decreased 0.1 percent from March, when they rose 0.3 percent, a Bloomberg survey showed before the data today.

European Central Bank Policy makers are forecast to keep the main refinancing rate at a record-low 1 percent when they meet tomorrow, according to a separate poll.

The euro has declined 3.5 percent over the past six months, making it the worst performer among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar gained 4.1 percent and the yen appreciated 3.2 percent.

RBA Rate Decision

RBA Governor Glenn Stevens and his board lowered the overnight cash rate target by a quarter percentage point to 3.5 percent, the lowest since 2009, the central bank said in a statement in Sydney today. Swaps data compiled by Bloomberg had shown a more than 40 percent chance of a reduction to 3.25 percent before the decision.

“The market expected slightly more than 25, and the RBA cut only 25, so I think it’s caused short-covering,” said Roy Teo, a currency strategist in Singapore at ABN Amro Private Bank, referring to the scale of reduction anticipated by investors. “For the short term, I’d start to be positioned for some buying in anticipation of a relief rally” for the Australian dollar.

The dollar maintained a gain against the yen after Japan’s Finance Minister Jun Azumi pledged on June 1 to take “decisive action” on his nation’s currency should “excessive moves” persist. Azumi declined to comment on whether Japan has intervened in the foreign-exchange market at a press conference yesterday.

Intervention Unlikely

The nation probably didn’t sell the yen last week to weaken the currency, Totan Research Co. said yesterday, citing its analysis of the Bank of Japan (8301)’s current-account balances.

The greenback may drop toward 75.56 versus the yen after breaching key technical levels amid risk aversion by investors, according to Bank of America Corp.

The U.S. currency may be poised for further declines after it closed below the so-called cloud on its weekly ichimoku chart, according to MacNeil Curry, the bank’s New York-based head of foreign-exchange and interest-rates technical strategy. It retreated to 75.35 yen in October, a post-World War II record low.

Ichimoku analysis is used to predict a currency’s direction through analyzing the midpoints of historical highs and lows.

To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net Kristine Aquino in Singapore at kaquino1@bloomberg.net;

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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