Euro Strengthens Against Most Counterparts on Crisis Plan

The euro gained against the majority of its most-traded peers as investors speculated that European leaders will make progress on measures to stem the region’s sovereign-debt crisis.

The 17-nation currency traded near a seven-week high against the dollar after German business confidence fell less than some economists forecast and as German Finance Minister Wolfgang Schaeuble said Germany and France will create a working group to enhance the region’s monetary union. European Central Bank President Mario Draghi said on Aug. 2 the bank may buy bonds to aid the bloc’s recovery even as Germany’s Bundesbank has opposed such purchases. Sweden’s krona appreciated after retail sales increased more than forecast.

“The ideal situation would be for a compromise position between the Bundesbank and the ECB,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “One way or another, these bond purchases are going to come through.”

The euro declined 0.1 percent to $1.2499 at 5 p.m. in New York after climbing to $1.2590 on Aug. 23, the strongest level since July 4. The common currency was little changed at 98.43 yen after advancing to 99.18 yen on Aug. 21, the highest since July 5. The dollar added 0.1 percent to 78.74 yen.

U.K. financial markets were shut today in observance of the Summer Bank Holiday.

The euro has strengthened 0.3 percent in the past month among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 1.7 percent and the dollar fell 1.3 percent. Sweden’s krona led gainers, rising 3.1 percent, while the Australian dollar fell 2.5 percent to pace decliners.

Krona, Loonie

The krona rose against all but one of its 16 major counterparts as retail sales climbed an annual 2.4 percent in July from a revised 1 percent the previous month, Statistics Sweden said. The krona has appreciated 8.4 percent against the euro this year as overseas investors sought safer assets.

The Swedish currency rose 0.1 percent to 6.5983 per dollar after appreciating to 6.5662, the strongest since Feb. 29. It gained 0.2 percent to 8.2463 versus the euro.

Canada’s dollar strengthened for a second day against its U.S. counterpart and rose against a majority of its most-traded peers amid sharper appetite for higher-yielding assets. The currency, nicknamed the loonie, rose 0.2 percent to 99.07 cents per U.S. dollar.

‘Structural’ Solutions

Australia’s dollar touched its lowest level in a month, extending a two-week decline, as concern global growth is waning curbed demand for higher-yielding assets. The Aussie fell against most of its major peers, declining 0.3 percent to $1.0369.

The Australian currency may extend losses to $1.017 if it declines below so-called support at $1.3042, according to Skandinaviska Enskilda Banken AB (SEBA), citing trading patterns.

The euro fluctuated against the dollar after Schaeuble said the working group will prepare solutions in the areas of banking union and a strengthening of a fiscal union and monetary union. He spoke after meeting with French Economy and Finance Minister Pierre Moscovici in Berlin. Moscovici said the two states will work on “structural” solutions.

German Chancellor Angela Merkel told officials in her coalition calling for a Greek exit from the euro to “weigh their words” as she signaled a renewed determination to keep the single currency intact.

‘Decent Read’

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 102.3 from a revised 103.2 in July. The lowest prediction in a Bloomberg News survey of 37 economists was for a decline to 101.

“Some in the market had expected a much worse report, and that’s why the euro gained some ground,” said Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva. “The key number may be softer than expected, but it’s still a decent read, and is consistent with the economy that remains resilient. It’s not an absolute collapse.”

The euro will fall toward $1.20 over the next three months, Gareth Berry, foreign-exchange strategist at UBS AG, said in Bloomberg Television interview on “The Pulse” with Caroline Hyde. The median estimate for economists surveyed by Bloomberg News is for the euro to drop to $1.21 by year end.

Draghi, Bernanke

Draghi may provide hints on future policy when he speaks at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, on Sept. 1. Fed Chairman Ben S. Bernanke will deliver a speech there on Aug. 31.

“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Bernanke wrote in a letter dated Aug. 22 to California Republican Darrell Issa, chairman of the House Oversight and Government Reform Committee.

Bernanke probably won’t use his speech at Jackson Hole to suggest a third round of bond buying, according to economists including Michael Feroli, chief economist at JPMorgan Chase & Co. in New York, and James O’Sullivan, chief U.S. economist for High Frequency Economics in Valhalla, New York.

Members of the Federal Open Market Committee, who meet next on Sept. 12-13, are closely monitoring unemployment and other data and have been divided about whether to spur expansion.

“There’s nothing really to shock the market,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “We’re just going to have to wait for the upcoming comments from Draghi and the FOMC.”

Euro Shorts

Futures traders cut bets the euro will weaken against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the European currency compared with those on a gain was 123,932 on Aug. 21, down from 137,810 a week earlier.

“The decrease in euro shorts indicates substantial expectations for some form of U.S. monetary easing,” said Makoto Noji, a foreign-exchange strategist at SMBC Nikko Securities Inc. in Tokyo.

Hedge funds and large speculators are abandoning bets on a stronger dollar at the fastest pace ever amid growing confidence in the global economy.

Futures contracts favoring gains in the U.S. currency surged to the most on record in June as growth faltered and investors retreated from risky assets. Now, hedge funds are reversing those bets as central banks from China to the U.S. vow to stimulate their economies, prompting money managers to seek higher returns from Sweden to Australia.

Traders have less need for the relative safety of assets denominated in dollars as the cost of insuring sovereign bonds for Group of 10 and other nations tumbles to the lowest level in a year and stocks reach the highest since 2008.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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