The euro rose to the strongest in more than seven months against the dollar on speculation U.S. lawmakers will reach a budget pact to avert pushing the economy over the so-called fiscal cliff and into recession.
The euro gained against major counterparts as Standard & Poor’s lifted Greece’s credit rating from selective default. The yen fell for a sixth day against the euro before the Bank of Japan starts a two-day meeting, with newly elected Prime Minister Shinzo Abe pressing policy makers to increase stimulus. Sweden’s krona jumped after the central bank signaled it probably won’t cut interest rates next year, even as it lowered its benchmark today.
“All the movements today are tied to the cliff,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “The markets are acting as if something is going to get done and maybe this week.”
The euro added 0.5 percent to $1.3229 at 5 p.m. New York time, reaching the highest level since May 2. The shared currency was up 0.9 percent to 111.40 yen. Japan’s currency fell 0.4 percent to 84.21 per dollar, after falling yesterday to the lowest since April 12, 2011.
The implied volatility of Group of Seven currencies fell to the lowest level in five years, according to a JPMorgan Chase & Co. index. The measure slid to 7.06 percent, the least since August 2007.
The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, fell 0.3 percent to 79.329 after dropping to the lowest since Oct. 18. There was reduced demand for the safety of Treasuries amid speculation U.S. lawmakers will agree on a way to avoid the so-called fiscal cliff.
House Speaker John Boehner will continue to negotiate with President Barack Obama today, and push a “Plan B” to the president’s proposed budget offer that would raise taxes by $1.2 trillion and boost tax rates for households earning more than $400,000 a year, a Republican aide said.
White House spokesman Jay Carney said Boehner’s plan isn’t balanced and can’t pass the Democratic-controlled Senate. “The president is hopeful that both sides can work out remaining differences and reach a solution,” Carney said in a statement.
The krona strengthened 0.3 percent to 8.7347 per euro, and climbed 0.8 percent to 6.6028 per dollar after the Stockholm- based Riksbank suggested it doesn’t expect to cut borrowing costs next year.
The central bank reduced its benchmark rate by a quarter of a percentage point to 1 percent. The decision was predicted by all except one of 17 economists surveyed by Bloomberg. The Riksbank said it expects the rate to be at 1.1 percent in a year, versus an October forecast of 1.3 percent.
The euro climbed versus most of its 16 major counterparts after S&P lifted Greece’s long-term rating to B-, citing the completion of the nation’s distressed debt buyback and the determination of euro zone member states to preserve Greece’s membership in the currency bloc.
Gains in the shared currency may be limited as the 14-day relative strength index versus the dollar rose to 71.3. A reading of 70 indicates an asset’s value may have risen too far, too quickly and is due for a correction.
The yen has lost 12.5 percent this year, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 3.3 percent and the euro has dropped 1.1 percent.
The Japanese currency may decline to a 31-month low against the dollar, according to UBS AG. Breaking 84.20 per dollar could see the currency fall to 94.13 yen, the 38 percent Fibonacci retracement of the yen’s appreciation from June 2007 to October 2011.
Japan’s new leader told reporters he requested BOJ Governor Masaaki Shirakawa to agree on an accord with the 2 percent inflation target, instead of the current 1 percent goal, when the two met today.
The central bank will discuss setting a price target when policy makes meet, the Nikkei newspaper reported, without saying where it got the information. A final decision is expected to be made in January, according to the report.
“Fears that the new Abe government is going to announce something quite drastic are diverting flows into other currencies,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA (BBVA) in London.
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