The euro dropped against the dollar for the first time in three days on mounting speculation that next week’s summit of European leaders won’t be able to stem the region’s sovereign-debt crisis.
The shared currency still rose for the first week in a month versus the greenback on optimism European central banks may funnel loans through the International Monetary Fund to fight the crisis. The euro dropped today after a rally that saw it rise 1.5 percent from a seven-week low on Nov. 25. The dollar advanced against most of its major peers as stocks pared gains.
“We’ve priced in quite a bit of optimism in the last three or four days,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “I’m inclined to be very cautious in terms of risk positions going into next week’s events. The measures were dealing with symptoms of the sovereign-debt crisis, but we still have to deal with the actual underlying problem.”
The euro depreciated 0.5 percent to $1.3391 at 5 p.m. in New York, paring its weekly gain to 1.2 percent. Earlier, the 17-nation currency gained as much as 0.7 percent. It fell 0.2 percent to 104.43 yen. The dollar rose 0.4 percent to 77.99 yen.
The Standard & Poor’s 500 Index was little changed after climbing earlier as much as 1.3 percent.
South Africa’s rand and Brazil’s real were the top performers among the greenback’s 16 most-traded counterparts. The real gained 0.5 percent to 1.7908 to the dollar, and the rand strengthened 0.5 percent to 8.0437 per dollar.
The Swiss franc declined against the euro after Switzerland said yesterday it may consider additional steps to support the central bank in its fight to curb the currency’s gains. The franc slipped 0.1 percent to 1.2342 per euro.
Canada’s dollar fell for the first time in seven days, losing 0.6 percent to C$1.0195 per U.S. dollar, after employment in the nation unexpectedly fell last month.
Europe’s 17-nation currency advanced earlier after two people familiar with the negotiations said the region’s finance ministers gave the go-ahead for work on the IMF plan at a Nov. 29 meeting attended by European Central Bank President Mario Draghi. The proposal could deliver up to 200 billion euros to fight the debt crisis, said the people, who declined to be named because talks are at an early stage.
The need for a new crisis-containment tool emerged as the effort to boost the region’s 440 billion-euro ($589 billion) rescue fund to 1 trillion euros fell short.
German Chancellor Angela Merkel likened solving Europe’s debt crisis to a marathon, shunning investor calls for quick action while pushing for stricter budget enforcement.
Speaking to lawmakers in Berlin today before the European summit on Dec. 9, Merkel rejected joint euro-area bonds or trying to make the European Central Bank the lender of last resort as quick fixes.
The euro erased gains versus the greenback as the Hill newspaper reported conservative U.S. lawmakers in Washington may try to block the plan to channel central-bank loans through the IMF to protect U.S. taxpayers. Senator Tom Coburn said he plans legislation that would direct the government to veto an expanded role for the fund, the Washington-based publication said today.
“It’s a big dose of IMF worries on a Friday evening, and some euro decoupling from stocks,” said Kit Juckes, head of foreign-exchange research at Societe Generale SA in London. “The euro didn’t get high enough to trigger meaningful short-covering.”
A short position is a bet the price of an asset will fall. The euro rose as high as $1.3548 earlier, and its failure to break above $1.3560 led it to lose momentum, Juckes said.
Futures traders increased bets the euro will fall versus the dollar. The so-called net short positions rose to 104,302 in the five days ended Nov. 29, the most since June 2010, according to Commodity Futures Trading Commission data released today.
The Federal Reserve said Nov. 30 it had agreed with the central banks of Europe, Canada, Switzerland, the U.K. and Japan to reduce the premium to borrow dollars overnight by half a percentage point to 50 basis points.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and yen, rose 0.5 percent to 78.682 after falling earlier as much as 0.4 percent.
The greenback gained 6.6 percent over the past three months against nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Currency Indexes as investors sought haven. The yen advanced 3.1 percent, and the euro rose 0.3 percent.
The U.S. unemployment rate declined to 8.6 percent in November, the lowest since March 2009, from 9 percent in October, Labor Department figures showed today in Washington.
Payrolls climbed by 120,000 jobs, compared with a forecast of a 125,000 gain in a Bloomberg News survey. More than half the hiring came from retailers and temporary-help agencies. There was a revised 100,000-job increase in October that was more than initially estimated.
The U.S. economic recovery may be gaining momentum, data earlier this week signaled. American manufacturing expanded in November at the fastest pace in five months, an Institute for Supply Management index showed yesterday. The Conference Board’s index of consumer confidence increased to a reading of 56 last month from 40.9 in October, the biggest jump since April 2003, a report from the private research group showed on Nov. 29.
“With the strong consumer confidence and the decent ISM yesterday, the expectations for today’s payrolls were amplified,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. based in New York. “It’s broadly in line with expectations, but it’s not as good as widely hoped for.”