Euro Rallies Amid Bets Ukraine Conflict Contained

The euro rose the most in more than two weeks against the dollar amid speculation technical signals triggered automatic orders to buy the 18-nation currency, and on bets tension over Ukraine won’t escalate into military action.

The yen fell versus the euro as traders weighed prospects the Bank of Japan will boost stimulus to ease the impact of a planned tax increase. The Aussie gained versus all 16 of its major peers. Europe’s shared currency earlier approached a two-week low versus the dollar as a measure of German manufacturing dropped. A gauge of currency volatility sank to a 15-month low.

“The bid interest in the euro-dollar remains,” said Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York. “The market is getting used to the idea that announced sanctions are political theater, and without much bite. The prospect of Russia acquiring Crimea without bloodshed is gaining momentum.”

The euro jumped as much as 0.6 percent, the biggest intraday gain since March 6, to $1.3876 before trading at $1.3839 at 5 p.m. New York time, up 0.3 percent. The currency fell earlier to as low as $1.3760 after reaching $1.3749 on March 20, the weakest level since March 6.

The European currency rose 0.3 percent to 141.48 yen. The Japanese currency was little changed at 102.24 per dollar.

Volatility Falls

Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs dropped 11 basis points, or 0.11 percentage point, to 7.02 percent, the lowest level since Dec. 17, 2012. The average over the past year is 8.58 percent.

The euro declined earlier as Markit Economics said its German factory index was 53.8 this month, from 54.8 in February. Economists predicted a reading of 54.5 in the purchasing managers’ index, according to a Bloomberg survey. The common currency had advanced earlier after a gauge of French manufacturing rose to the highest since June 2011.

An index of manufacturing in the euro area dropped to 53 from 53.2, a separate report from Markit showed.

The euro reversed its decline after reaching its low level of the day.

“There was a run of stop-losses,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York, said of the shared currency’s gain. A stop-loss is a level designated for a sell order.

Aussie, Rand

The Aussie dollar rose 0.6 percent to 91.30 U.S. cents and touched 91.50 cents, the highest since Dec. 11. It strengthened 0.5 percent to 93.37 yen and touched 93.56 yen, the highest since March 10.

South Africa’s rand appreciated 0.6 percent to 10.8302 to the greenback.

Asian stocks rose as a gauge of China’s manufacturing weakened for a fifth straight month, fueling speculation policy makers in the nation will increase stimulus. The MSCI Asia Pacific Index gained 1.2 percent.

A purchasing managers’ index on China from HSBC Holdings Plc and Markit Economics dropped to 48.1, compared with the 48.7 median estimate of 22 analysts surveyed by Bloomberg News and February’s final 48.5 figure. Numbers above 50 signal expansion.

“Quick actions are clearly warranted,” Chang Jian, chief China economist at Barclays Plc in Hong Kong, said in an e-mail.

China’s yuan climbed the most in more than two years as the central bank strengthened the reference rate for the first time in five days after comments from officials suggesting the currency wouldn’t keep falling.

The yuan rallied 0.6 percent, the most since Oct. 10, 2011, to 6.1888 per dollar.

G-7 Leaders

Group of Seven leaders, meeting for the first time since last week’s annexation of Crimea by Russia, threatened further sanctions to deter the Kremlin from invading other parts of Ukraine. They said they’ll boycott what was to be a Group of Eight summit hosted by Russian President Vladimir Putin. They met in The Hague.

“We’re united in imposing a cost on Russia for its actions so far,” President Barack Obama said in Amsterdam earlier today at the start of a six-day trip that includes a nuclear-security summit in The Hague.

European and U.S. stocks fell, with the Standard & Poor’s 500 Index declining 0.5 percent.

The yen has weakened 8.9 percent in the past 12 months, the third-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar slipped 0.2 percent and the euro gained 8.4 percent.

Europe’s shared currency will fall to $1.31 by year-end, the lowest since July, according to the median estimate of analysts in a Bloomberg survey. The yen will weaken to 110 per dollar for the first time since August 2008, analysts forecast.

Japanese Stimulus

The yen reached the lowest in two weeks versus the Australian dollar amid bets the Bank of Japan will boost stimulus to ease the impact of a planned tax increase.

Deflation is the biggest problem for Japan’s economy and a cause of yen strength, BOJ Deputy Governor Kikuo Iwata said at a forum on monetary policy. The central bank will adjust monetary policy if its target of 2 percent inflation is deemed impossible to achieve, he told lawmakers on March 6.

About a third of economists predict the Japanese central bank would expand stimulus as early as next month, when the government increases the sales tax to 8 percent from 5 percent, according to the results of a Bloomberg survey conducted from Feb. 26 to March 4.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Paul Cox

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