Euro Gains After S&P Clarifies France’s Rating; Real Advances

Euro Will Fall as Crisis Engulfs Italy, Sinche Says
The euro lost 4 percent since the end of August as investor focus turned to Italy and whether it could implement sufficient austerity measures to avert a jump in bond yields similar to that in Greece. Photographer: Chris Ratcliffe/Bloomberg

The euro advanced from a one-month low versus the dollar after Standard & Poor’s clarified that France’s credit rating remains AAA, easing concern that a crisis was imminent in the region’s second-largest economy.

The 17-nation currency advanced earlier versus most major peers after Italy drew double the bids for the amount on offer at a bill sale, damping bets the nation will face a challenge funding itself. Greece chose a prime minister to head a unity government. Higher-yielding currencies including Brazil’s real and Norway’s krone rose as U.S. stocks advanced.

“There were heavy rumors related to a French downgrade, but now they’ve been denied,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London. “It’s part of a wider stabilization in risk, but we still have a tremendous amount of uncertainty in the system.”

The euro gained 0.5 percent to $1.3606 at 5 p.m. New York time, after rising earlier as much as 0.8 percent and sliding to as low as $1.3484, the weakest level since Oct. 10. It appreciated 0.3 percent to 105.66 yen after falling earlier to 104.73 yen, the lowest since Oct. 12. The yen strengthened 0.2 percent to 77.65 per dollar and touched 77.51.

The S&P 500 Index of stocks rose 0.9 percent.

Europe’s shared currency rallied from little-changed as S&P said a message was erroneously sent today to some of its subscribers suggesting France’s top-notch credit rating had been lowered. It affirmed the country’s AAA rating.

‘Stable Outlook’

“As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P’s Global Credit Portal suggesting that France’s credit rating had been changed,” S&P said in a statement. “The ratings on Republic of France remain ‘AAA/A-1+’ with a stable outlook, and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error.”

Yields on France’s 10-year government bond jumped as much as 28 basis points to 3.48 percent. The additional yield demanded by investors to hold 10-year French securities instead of similar-maturity benchmark German bunds widened to a record 1.69 percentage points.

“Bond spreads are important to the euro when they start to impact the risk premium for holding euro-area assets more broadly,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “Risk appetite is important in pricing all manner of assets, and so we see the link between the various asset markets.”

Italian Spreads Narrow

The French yields increased a day after rates on Italian government 10-year debt jumped to a euro-era record of 7.48 percent, exceeding 7 percent, the threshold at which Greece, Italy and Portugal sought international bailouts. The Italian securities yielded 6.89 percent today, 5.11 percentage points more than bunds, compared with 5.53 percentage points yesterday.

“French 10-year spreads hit a record high late in the European session despite the tightening in Italian spreads,” said Andrew Cox, a currency strategist at Citigroup Inc. in New York. “Euro-zone developments continue to drive asset-market sentiment despite the confirmation of France’s AAA rating and stable outlook from Standard & Poor’s.”

The three-month cross-currency basis swap, the rate banks pay to convert euro payments into dollars, was 1.14 percentage points below the euro interbank offered rate, according to data compiled by Bloomberg. It was the most since December 2008 in the midst of the financial crisis.

Implied volatility of Group of Seven currencies increased as much as 0.5 percent to 13.68, the highest level since Oct. 6. Implied volatility, which traders quote and use to set option prices, signals the expected pace of swings in the underlying currency.

Italian Bill Sale

The euro gained earlier as Italy, the region’s third-largest economy, sold 5 billion euros ($6.8 billion) of bills to yield 6.087 percent, compared with 3.57 percent the last time it auctioned 12-month securities on Oct. 11. Demand was 1.99 times the amount on offer. The European Central Bank was said to have bought Italian government bonds.

The yen touched its strongest level against the dollar since it reached a post-World War II high of 75.35 on Oct. 31.

Japan may have sold yen more than once since Oct. 31, when the country said it intervened in foreign-exchange markets to curb the currency’s rise, according to Totan Research Co.

“There is the possibility that medium-scale interventions were conducted,” Izuru Kato, chief economist at the Tokyo-based company, wrote in a research note yesterday, citing analysis of the Bank of Japan’s current account and the BOJ holdings of government bonds. Japan may have sold as much as 9.1 trillion yen ($117 billion) from Oct. 31 to Nov. 4, he wrote.

Week’s Top Performer

The yen gained 2.1 percent over the past week versus nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar rose 1.3 percent and the euro fell 0.2 percent.

The Dollar Index declined 0.5 percent to 77.616 on reduced demand for a refuge after a report showed the number of Americans filing applications for unemployment benefits fell to the lowest level in seven months.

U.S. initial jobless claims fell by 10,000 to 390,000 in the week ended Nov. 5, Labor Department figures showed today in Washington. The number of people on jobless benefit rolls decreased, while those getting extended payments rose.

The S&P 500 Index tumbled 3.7 percent yesterday on concern European leaders may be unable to keep the euro zone intact. The decline erased the index’s month-to-date gain.

Brazil’s real climbed 1 percent to 1.7616 per dollar, and Norway’s krone strengthened 0.7 percent to 5.6944 to the greenback. The S&P GSCI Index of raw materials rose 0.6 percent.

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