Euro Advances as Van Rompuy Hints at Spain Rescue; Krone Gains
The euro rose for the first time in three days against the dollar after European Union President Herman Van Rompuy said the region’s rescue fund is ready for rapid action to aid Spanish banks.
Europe’s shared currency climbed from a one-week low against the yen after European Central Bank President Mario Draghi canceled his trip to the annual Jackson Hole symposium and Spain sold more bills than its maximum target at an auction. Norway’s krone climbed to the strongest level in more than three months against the dollar amid speculation the central bank will refrain from lowering interest rates tomorrow.
“Van Rompuy’s comments are in keeping with the positive sentiment in the market that we’re close to a deal,” Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. (BK), said in a telephone interview. “The move in the euro is likely driven by expectations over the ECB’s willingness to act to support euro-zone debt markets.”
The euro advanced 0.5 percent to $1.2565 at 5 p.m. New York time. Europe’s shared currency rose 0.2 percent to 98.64 yen after dropping to 97.89 yen, the weakest level since Aug. 20. The dollar declined 0.3 percent to 78.51 yen.
The shared currency may appreciate following developments out of Europe, according to Mary Nicola, a New York-based currency strategist at BNP Paribas SA. The firm has a year-end target of $1.35 for the shared currency, according to a survey conducted by Bloomberg.
“We’ve had a lot of positive noises coming from a lot of European officials over the course of the last few weeks,” Nicola said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Sara Eisen. “We could see further upside for the euro-dollar.”
The krone advanced against most of its major peers on speculation the Oslo-based Norges Bank, which has cut its main rate by 75 basis points, or 0.75 percentage point, since December, will leave its key policy rate at 1.50 percent, according to the median estimate in a Bloomberg survey.
Norway’s currency gained 0.2 percent to 5.8297 per dollar after appreciating to 5.7974, the strongest level since May 8.
Finance ministers from the Group of Seven nations are monitoring the risks posed by high oil prices, according to a G-7 joint statement issued today by the U.S. Treasury Department. The G-7 nations called on oil-producing countries such as Norway to increase output.
New Zealand’s dollar fell versus most of its major counterparts after dairy exporter Fonterra Cooperative Group Ltd. cut its forecast for payments to farmers. The so-called kiwi declined 0.5 percent to 80.46 U.S. cents and 0.8 percent to 63.17 yen.
The greenback will probably stay in the range from 78.15 to 79.14 yen as investors look for policy signals from this week’s Federal Reserve meeting, according to Junichi Ishikawa, a Tokyo- based analyst at IG Markets.
Van Rompuy damped speculation that Spain will need a full rescue, saying 100 billion euros ($126 billion) in banking aid will tackle the country’s most pressing problem.
“Spain already has a large program to restructure its financial sector, which deals with the most acute economic challenge,” Van Rompuy said at a joint press conference with Spanish Prime Minister Mariano Rajoy in Madrid today. Spain could tap other types of aid “if financial markets’ defiance persists.”
Draghi won’t go to Jackson Hole, Wyoming, because of the workload foreseen in the next few days, an ECB spokesman in Frankfurt said today. No Executive Board member will attend the conference, according to the ECB.
The ECB’s Governing Council meets on Sept. 6 in Frankfurt and Draghi is expected to announce details of the bank’s new bond-buying program, a proposal that has been criticized by the Bundesbank.
“It’s quite clear at this point that a bond purchase program will materialize,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc. in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Eisen. “That is enough to underpin the market for now. It doesn’t mean that the euro crisis has been solved, but it means that global markets can trade better for the time being.”
The Spanish Treasury sold a combined 3.6 billion euros ($4.5 billion) of three- and six-month bills, more than the 3.5 billion euros it originally sought. The three-month securities were auctioned at a yield of 0.946 percent, down from 2.434 percent at the previous sale on July 24.
Italy also saw a decline in its funding costs today when it sold 3.75 billion euros of zero-coupon and inflation-linked bonds. The Treasury sold the zero-coupon securities to yield 3.064 percent, down almost 2 percentage points from the last sale a month ago.
The euro advanced 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. Sweden’s krona rose 2.8 percent to lead gainers. The dollar fell 1.5 percent and the yen slid 1.6 percent. Australian dollar’s 2.6 percent drop paced decliners.
“The market is waiting for the ECB, to see what they will do,” said Steven Barrow, head of Group of 10 research at Standard Bank Plc in London. “There’s more room for upside in the euro over the next few weeks.” The euro may strengthen to $1.30 over the next month, he said.
Fed Chairman Ben S. Bernanke will speak in Jackson Hole on Aug. 31. His address in 2010 preceded a second round of bond purchases to help support the economic recovery.
The Dollar Index fell after a two-day gain as investors weighed whether the Fed will embark on a third round of bond purchases, known as quantitative easing.
The gauge, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.4 percent to 81.349. The index dropped to 81.221 on Aug. 23, the lowest level since June 20.
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