Euro Rallies on ECB Rate Speculation, Debt-Crisis Discussions

The euro advanced against the dollar for the first time in three days as European Union leaders began a two-day meeting on measures to contain the region’s sovereign-debt crisis.

The 17-nation currency gained against the yen as speculation the European Central Bank is poised to raise borrowing costs outweighed fiscal turmoil. The euro rose even as Fitch Ratings cut Portugal’s credit rating after the nation’s Prime Minister Jose Socrates resigned yesterday. Currencies with above-average economic growth, such as New Zealand and Canada, advanced as raw material prices and equities rallied.

“What we’re doing now is buying the rumor on an ECB rate hike and then we’ll sell the fact when it materializes,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The euro is still going to make new highs.”

Chandler said the shared currency may reach $1.45 to $1.47 in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene.

The euro appreciated 0.6 percent at $1.4177 at 5:09 p.m. in New York, from $1.4088 yesterday. The euro touched $1.4249 on March 22, matching the level on Nov. 5. The currency appreciated 0.7 percent to 114.79 yen, from 114 yen. The dollar was at 80.97 yen, compared with 80.92.

Futures Bets

Futures show traders added to bets on higher borrowing costs in the region, with the implied yield on the three-month Euribor contract expiring in September rising 0.1 percentage point to 1.8 percent. That compares with a 17 percent chance the Federal Reserve will raise U.S. interest rates from near zero in September, according to CME Group Inc. exchange futures.

The euro extended its gains after breaking through the technical level of $1.4150.

“There were stops at $1.4150 and $1.4170 that may have pushed the euro higher,” said John McCarthy, director of currency trading at ING Groep NV in New York. “I’m always surprised risk is as buoyant as it is and there is interest to sell dollars today against everything but the yen.”

U.S. Treasuries dropped pushing the yield on the 10-year note to the highest in a week as investors sold the dollar to seek higher yielding assets. The benchmark 10-year yield increased four basis points, or 0.04 percentage point to 3.39 percent. The MSCI World Equity Index traded 0.9 percent higher, its biggest gain in three days.

Dollar Index

The Dollar Index, which tracks the currency against six major trading partners, fell 0.2 percent to 75.671 as two European officials said a bailout for Portugal may total as much as 70 billion euros ($99 billion). The gauge is weighted 57.6 percent to movements in the euro.

Portugal hasn’t asked for a bailout and the figures are preliminary, the officials said. The action would follow Greece and Ireland’s request of aid from the European Union and the International Monetary Fund.

Greece accepted a $110 billion-euro aid package from the EU and IMF in May 2010 and Ireland accepted an 85 billion-euro bailout fund in November.

Portugal had its long-term foreign and local currency issuer default ratings cut to ‘A-’ from ‘A+’ by Fitch Ratings. The ratings were placed on rating watch negative, citing “increased risks to policy implementation and fiscal financing in light of the Portuguese parliament’s failure to pass fiscal consolidation measures and the resignation of the Prime Minister on 23 March.”

Euro Shares

Portugal made up about 1.8 percent of the total 17-nation euro-zone gross domestic product in the fourth quarter last year, according to Eurostat, the European Union’s statistics office, and Bloomberg data, while Ireland accounts for 1.8 percent and Greece makes up 2.3 percent.

“The euro is in a tug-of-war between relatively strong economic data and the pretty strong belief that the ECB will raise rates soon against the lingering unresolved sovereign debt crisis,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York.

The Swiss franc weakened 0.1 percent to 90.90 centimes per dollar, from 90.84 yesterday. The currency earlier gained as much as 0.4 percent against the greenback amid speculation a takeover of Alcon Inc. by Novartis AG may prompt sales of the currency.

Pound Falls

The pound weakened 0.8 percent to $1.6102 after a report showed U.K. retail sales dropped in February more than economists forecast after a surge in the previous month, when shoppers boosted spending to beat a tax increase.

Sales fell 0.8 percent last month after an increase of 1.5 percent in January, the Office for National Statistics said. The median forecast of 24 economists in a Bloomberg News survey was for a 0.6 percent drop.

New Zealand’s dollar advanced against all of its major counterparts after the government said the economy grew in the fourth quarter, avoiding a recession. New Zealand’s currency jumped 1.2 percent to 74.91 U.S. cents and rallied 1.3 percent to 60.68 yen.

Canada’s dollar strengthened for the first day in three days against the greenback as crude oil, the nation’s biggest export, traded at almost the highest level in 29 months. The currency gained 0.7 percent to 97.52 cents per U.S. dollar. Crude oil for May delivery advanced as much as 0.9 percent to $106.69 per barrel in New York before trading at $105.

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