Euro Advances Amid Central Bank Stimulus Speculation
The euro climbed to the strongest level against the dollar in almost seven weeks as speculation the U.S. and China will ease monetary policy spurred demand for currencies that perform better as the global economy expands.
Europe’s shared currency rose against the yen before Germany and France hold debt-crisis talks in Berlin today. The dollar fell for a fourth day before a report forecast to show sales of new houses in the U.S. increased in July and after Federal Reserve Bank of Chicago President Charles Evans broadened his call for additional measures to support growth. New Zealand’s dollar appreciated against all but one of its major counterparts as Asian stocks gained.
“Central banks are printing money like crazy, which is all positive for risk assets,” said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “The Fed has given a strong signal that unless things pick up they are going to take more action and that’s helping the euro. It’s also going to be dollar-negative.”
The euro strengthened 0.2 percent to $1.2549 at 7:27 a.m. New York time, after reaching $1.2572, the most since July 4. It climbed 0.2 percent to 98.66 yen. The dollar was 0.1 percent weaker at 78.62 yen.
The euro is in a “firming trend” toward its June high, Ralf Umlauf, an analyst at Landesbank Hessen-Thueringen in Frankfurt, wrote in a note to clients. “The uptrend established last month will continue to set the tone for the short-term,” he wrote. Europe’s shared currency reached $1.2748 on June 18, which was the most since May 22.
People’s Bank of China Governor Zhou Xiaochuan said yesterday that adjustments to interest rates and banks’ reserve requirements are still possible after the central bank stepped up temporary cash injections this month. Minutes of the Federal Open Market Committee’s most recent meeting published yesterday showed many policy makers favor stimulus additional measures.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six U.S. trading partners, dropped as much as 0.3 percent today to 81.284, the lowest since June 20.
Sales of new houses in the U.S. climbed to a 365,000 annual pace in July, their third increase in four months, according to analysts surveyed by Bloomberg. A separate release, from the Labor Department, will show that claims for jobless benefits were little changed last week, economists predict.
The Fed bought $2.3 trillion of mortgage and Treasury debt between 2008 and 2011 in two rounds of quantitative easing, or QE, to cap borrowing costs. Policy makers have held the Fed’s key rate in a range of zero to 0.25 percent since 2008 and have pledged to keep it there at least through late 2014.
A third round of asset purchases would “provide confidence to markets that we are intending to be accommodative for quite some time,” Evans told reporters in Beijing today. More accommodative policies are needed around the world, from China to the U.S., he said.
The dollar has fallen 3 percent in the past month, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen posted the biggest decline, dropping 3.4 percent, while the euro climbed 0.8 percent.
German Chancellor Angela Merkel hosts French President Francois Hollande today as officials look for ways to stave off an immediate crisis as Greece prepares a report for international creditors on the health of its finances.
“Ongoing uncertainty regarding Greece and the periphery will cap medium-term gains” in the euro, strategists at Brown Brothers Harriman led by Marc Chandler wrote in a note to clients published today. “The dollar is trading softer in the aftermath of the FOMC minutes.”
A report released yesterday of the two-day meeting of the FOMC that concluded on Aug. 1 showed “many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” Policy makers next meet on Sept. 12-13.
“The minutes were quite dovish and are consistent with our economists’ view that QE3 is more likely than not in September,” BNP Paribas SA (BNP) strategists including Steven Saywell, London-based head of currency strategy for Europe, wrote in a report yesterday. “U.S. dollar weakness is likely to continue.”
New Zealand’s dollar advanced 0.3 percent to 81.61 U.S. cents and touched 81.87 U.S. cents, the highest since Aug. 7. The MSCI Asia Pacific Index of shares climbed 0.9 percent, while S&P 500 futures expiring in September rose 0.2 percent.
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