The euro advanced, extending last week’s gains versus the dollar and yen, after France and Germany said they want a rewrite of the European Union’s governing treaties to tighten economic cooperation in the region.
The 17-nation currency was supported as Italy’s cabinet approved a deficit-cut plan, easing concern the region’s debt crisis in worsening. Sterling strengthened as an index of U.K. services unexpectedly gained and U.S. services expanded in November at the slowest pace since January 2010. The yen and dollar weakened as stocks advanced.
“It looks like German Chancellor Angela Merkel’s way is the right direction, but we will see if the market can wait long enough for them to actually make any change,” said Mamoru Arai, foreign exchange manager at Mizuho Financial Group Inc. in New York. “The trade to sell dollars and buy euro on this is still OK.”
The euro rose 0.5 percent to $1.3457 at 12:44 p.m. New York time after gaining 1.2 percent last week. The shared currency climbed 0.2 percent to 104.68 yen. The dollar weakened 0.3 percent to 77.78 yen.
Merkel met French President Nicolas Sarkozy in Paris today to work on a plan for stricter enforcement of the region’s deficit rules. European Union leaders will hold a summit in Brussels Dec. 9.
“Our decisions were to craft new rules to avoid a repeat” of the crisis, Sarkozy said after the two met during lunch at Sarkozy’s Elysee palace. “This could be a new treaty signed by the 27 or at the level of the 17, and with whatever other country wants to join.”
Italian Prime Minister Mario Monti announced 30 billion euros ($40.3 billion) of austerity and growth measures yesterday. The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement.
“Policy makers working together rather than working against each other,” may underpin the euro, said Adam Cole, global head of foreign-exchange strategy at RBC Europe Ltd. in London. “This may be a positive development” for the common currency.”
The Standard & Poor’s 500 Index gained 1.7 percent and the S&P GSCI Index of 24 raw materials rose 0.5 percent.
The yen fell 0.3 percent against nine developed nation currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar declined 0.6 percent.
The Japanese currency may weaken toward 79.36 versus the dollar should it remain above support levels indicated by ichimoku cloud analysis, Commerzbank AG said.
“The market remains underpinned by cloud support at 76.76 and 76.47,” Karen Jones, head of fixed-income, commodity and currency technical analysis at Commerzbank in London, wrote in an e-mailed report today. “We look for these supports to hold the downside and while above here, the market will remain well-placed for a retest of the four-year downtrend at 79.36.”
The Dollar Index fell 0.5 percent to 78.297. The gauge, which tracks the greenback against six major trading partners, is weighted 57.6 percent to the euro.
At its meeting on Dec. 8, the ECB will cut its benchmark interest rate to 1 percent from 1.25 percent, according to the median estimate of economists surveyed by Bloomberg News.
Bank of Canada Governor Mark Carney will be the only central bank leader in the Group of 10 countries to raise interest rates next year, according to forecasts compiled by Bloomberg News. Inflation has exceeded the bank’s 2 percent target for 11 months as the economy grows at double the pace of the Group of Seven nations.
Canada’s dollar rose 0.6 percent to C$1.0138 per U.S. dollar. The currency is turning into a haven for foreign-exchange investors shunning European turmoil and seeking the safety of the U.S. without the budget deficits or political gridlock.
Mexico’s peso was the best performer against the dollar after the nation’s central bank started to auction $400 million of reserves last week. The move was to provide liquidity and arrest a slide in the currency, that’s made it the worst performer in Latin America this year, according to an e-mailed statement from the nation’s Currency Exchange Commission on Nov. 29.
The peso rose 1.1 percent to 13.4841 per dollar.
The pound strengthened against the dollar, snapping a two-day decline. It rose 0.5 percent to $1.5674.
A gauge of services activity based on a survey of purchasing managers rose to 52.1 from 51.3 in October, according to Markit Economics and the Chartered Institute of Purchasing and Supply. In the U.S. the Institute for Supply Management’s non-manufacturing index unexpectedly fell to 52 last month from 52.9 in October, the Tempe, Arizona based-group said today.