Euro Gains Amid Greek-Debt Discussions, Stronger U.S. Confidence

The euro gained for a fifth day against the dollar, the longest streak in three months, after European Union Economic and Monetary Affairs Commissioner Olli Rehn said Greece was “close” to reaching agreement with its creditors.

The 17-nation currency extended gains after a report showed U.S. consumer confidence this month was the highest in almost a year. The euro was supported as Italy sold bills, benefitting the European Central Bank’s efforts to fight the spread of the debt crisis by shoring up banks. The Dollar Index headed for its second weekly decline after the Federal Reserve’s pledge to keep interest rates low for at least three more years.

“The next market focus is whether Greece will get this next aid package and whether it will be able to stay in the euro,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “The market senses the Fed is cautious, so the market is scrutinizing all the data coming out of the U.S., so prices are really reacting.”

The euro rallied 0.9 percent to $1.3220 at 5 p.m. New York time, touching the highest level since Dec. 13. The yen strengthened 1 percent to 76.70 per dollar. Japan’s currency appreciated 0.1 percent to 101.39 per euro.

Fitch cuts

The shared currency remain higher after Fitch Ratings cut the credit ratings of Italy, Spain and three other euro-area countries, saying they lack financing flexibility in the face of the regional debt crisis.

Futures traders increased their bets the euro will fall versus the dollar to a record for a fifth straight week. So-called net shorts rose to 171,347 on Jan. 24, according to data from the Washington-based Commodity Futures Trading Commission.

The dollar strengthened earlier after U.S. gross domestic product climbed at a 2.8 percent annual following a 1.8 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg News called for a 3 percent increase. It weakened after the Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 75 from 69.9 at the end of December.

The U.S. currency had a weekly loss against all 16 of its major counterparts as the Fed’s pledge to keep interest rates near zero percent until the end of 2014 spurred investors to search for yield.

Dollar Measure

The Dollar Index, which tracks the U.S. currency against those of six trading partners, declined for a third day, dropping 0.7 percent to 78.836, touching the weakest since Dec. 12.

The yen rose against all its 16 most-traded counterparts. It added 0.7 percent to 81.75 versus the Australian dollar and jumped 0.6 percent to 63.26 against New Zealand’s currency as technical indicators showed the Japanese currency may have fallen too far, too quickly.

The seven-day relative strength index for the Australian dollar versus the yen fell below the 70 level for the first time in a week, the longest streak since April.

“The major driver for the market is still what will hopefully come out of Greece,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “You don’t want to sit on too much risk because of any potential news over the weekend, so the yen will continue to perform.”

Brazil Update

Brazil’s strengthened against the dollar even as traders added to bets the nation’s central bank will cut benchmark borrowing costs. The real advanced 0.7 percent to 1.7370 per U.S. dollar. The central bank’s board said it sees a “high probability” the Selic rate, currently at 10.5 percent, will be below 10 percent this year.

The dollar has weakened 2.3 during the past month, according to Bloomberg Correlation-Weight Indexes, which track 10 developed-nation currencies. The euro fell 1.1 percent, and the yen dropped 0.6 percent.

Italy auctioned 182-day bills at a yield of 1.969 percent, down from 3.251 percent at a sale of similar-maturity debt on Dec. 28. The Frankfurt-based ECB loaned euro-region banks a record 489 billion euros ($646 billion) for three years on Dec. 21 to avert a credit crunch.

“The next three days will be very crucial,” the EU’s Rehn said at the World Economic Forum in Davos, Switzerland. An agreement may come “if not today, then over the weekend,” he said.

Greece must repay 14.5 billion euros of bonds in March and an agreement that triggers as much as $3.2 billion of default insurance may be necessary unless all bondholders approve, according to Marco Buti, head of the European Commission’s economics division.

“They have not delivered on any pseudo announcement, but it’s becoming more likely because the source of the talk, Rehn, is from someone delivering a seemingly official message,” said Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London. “The Fed’s interest-rate action and extra liquidity from the ECB is a broad excuse to buy higher-yielders. It’s a sugar rush.”

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