Euro Rallies as U.S. Budget Spurs Shutdown Concern; Krona Falls

The euro advanced versus the dollar on signs of economic strength in the 17-nation region and concern Washington budget talks may lead to a federal shutdown.

The shared currency gained versus most of its major peers as consumer confidence in Germany, Europe’s biggest economy, increased more than estimated. The yen gained against a majority of its most-traded counterparts amid reduced risk demand. New Zealand’s dollar fell after the nation’s trade deficit unexpectedly widened. The Swedish krona dropped for a fourth day against the dollar as consumer confidence worsened in September.

“Strength in the euro is very supported by the German consumer confidence data,” Ravi Bharadwaj, a Boston-based senior market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “Most market participants are also very aware of previous shutdowns in the U.S., and are behaving accordingly.”

The euro appreciated 0.4 percent to $1.3526 per dollar at 5 p.m. New York time. The common currency rose 0.1 percent to 133.14 per yen. The dollar fell 0.3 percent to 98.43 yen.

The Brazilian real has gained 6.9 percent versus the greenback this month, while the yen has declined 0.3 percent.

The quarter, New Zealand’s dollar has led all major gainers with a 6.5 percent increase, while the worst-performing South African rand has slipped 1.1 percent. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 15.2 percent.

Krona Falls

Sweden’s krona extended its longest losing streak since June as a gauge of consumer confidence fell to 98 in September from 98.8 a month earlier. The nation also sold its remaining 7 percent stake in Nordea Bank AB (NDA), the Nordic region’s largest lender, for 21.6 billion kronor ($3.36 billion) to institutional domestic and international investors, it said today.

The krona dropped 0.3 percent to 6.4171 per dollar and weakened 0.7 percent to 8.6794 per euro.

South Korea’s won fell the most in more than a month on speculation authorities will intervene to slow gains after global demand for local shares boosted the currency to an eight-month high last week. The won depreciated 0.5 percent to 1,077.23 after falling the most since Aug. 22.

The New Zealand dollar fell for a second day against the dollar after the government said the nation’s trade deficit widened to NZ$1.2 billion ($989 million) in August, the biggest shortfall in five years. The kiwi declined 0.5 percent to 82.41 U.S. cents.

Technical Level

The currency may depreciate to 79.95, its weakest level in almost three weeks, if it fails to hold a key support level in the 81.40-to-81.80 area, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co, wrote today in a client note.

Purchases of new houses in the U.S. increased 7.9 percent to a 421,000 annualized pace following a 390,000 rate in the prior month that was less than previously estimated, figures from the Commerce Department showed today in Washington. Demand slumped 14.1 percent in July. Durable goods orders, excluding transportation, decreased 0.1 percent in August after falling 0.5 percent the prior month.

U.S. Treasury Secretary Jacob J. Lew stepped up pressure on Congress to avert a potential default, telling lawmakers in a letter that measures to avoid breaching the debt ceiling will be exhausted on Oct. 17.

The Senate advanced a stopgap spending measure after Republican Ted Cruz defied party leaders by staging an extended speech that lasted more than 21 hours. By a vote of 100-0, with 60 votes required, the Senate advanced the House bill passed Sept. 20 for further debate.

Closed Sign

“The lingering shutdown risk from the U.S. government is one factor that’s hurting some of the riskier currencies versus the core ones like the yen and euro,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. (WBC) in New York, said in a telephone interview.

Treasury bills maturing close to the deadline for raising the borrowing ceiling were little changed. Rates on bills due on Oct. 24 were 0.015 percent, compared with 0.005 percent two weeks ago. The rate on bills due Oct. 31 has held within two basis points of zero during the period.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, slipped 0.2 percent to 1,012.33.

The euro rose after GfK SE (GFK) forecast in a report its German consumer-confidence index will rise to 7.1 percent in October, the highest since September 2007. The Nuremberg-based research company said its measure of economic expectations climbed to 10.7 in September from 1.8 in August.

Euro Support

The derivatives market is showing the most confidence in the euro area since before the financial crisis as the premium traders pay to exchange euro-denominated loans for dollar funding for one-year has fallen to the lowest since March 2008.

The one-year cross-currency basis swap between euros and dollars shrank to minus 8.45 basis points today, from minus 24 at the end of last year, data compiled by Bloomberg show.

A negative swap rate signals that investors are willing to receive reduced euro interest payments to obtain dollar funding, and a smaller spread signals more confidence in the currency.

The euro has gained 5.7 percent this year, the biggest increased among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 2.8 percent and the yen fell 10.7 percent.

Trading in over-the-counter foreign-exchange options totaled $20 billion, from $24.5 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $4.4 billion, the largest share of trades at 22 percent. Options on the euro-dollar rate totaled $2.1 billion.

Dollar-yen options trading was 11 percent more than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 41 percent less than average.

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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