Euro Strengthens on Optimism of Debt Crisis End; Krona Cl

The euro gained versus the majority of its most-traded peers as European leaders signaled rising confidence that the region’s debt crisis is close to an end.

The 17-nation currency pared a gain to almost a one-month high against the dollar after a report showed U.S. factory orders trailed forecasts, damping demand for riskier assets. The euro advanced earlier as regional finance ministers prepared to meet in two days to weigh increasing the total capacity of Europe’s bailout fund. The yen strengthened amid speculation Japanese companies will repatriate overseas earnings before the end of the fiscal year on March 31. Sweden’s krona rose on data showing consumer confidence improved.

“The euro has been pretty resilient,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “The market is focusing on the European finance ministers meeting later this week with the potential for an increased firewall.”

The euro advanced 0.5 percent against the pound at 83.86 pence at 10:20 a.m. New York time. It was little changed against the dollar at $1.3302. The yen gained 0.1 percent to 83.09 per dollar.

2012 View

The euro has risen 0.6 percent this year according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar has depreciated 2.3 percent, while the yen has fallen 10.4 percent, the worst two performances. The New Zealand dollar, up 3.2 percent, and Norway’s krone, up 2.2 percent, are the best performers in 2012.

Iceland’s krona and the Argentine peso are the biggest losers against the dollar this year among 25 emerging market currencies, according to data compiled by Bloomberg. The krona has lost 3.5 percent and the peso has fallen 1.7 percent. The Hungarian forint and Polish zloty have strengthened the most against the U.S. currency, adding 10.4 and 10.2 percent, respectively.

The South African rand was the worst performer against the dollar today, falling 1 percent to 7.6758 per dollar, after commodities fell on signs of slowing demand from China. China’s copper demand based on trade data climbed 26 percent in January and February from a year earlier, down from 30 percent growth in December.

China Policy

“We are seeing ongoing concerns out of China,” Gain Capital’s Viloria said. “China is slowing down it is just a matter of if it is going to be a hard landing or a soft one.”

Sweden’s krona advanced against all its major peers, rising 0.3 percent to 6.6709 per dollar.

The nation’s consumer confidence index rose to zero from minus 3.2 the previous month, the Stockholm-based National Institute of Economic Research said today. Economists predicted a reading of minus 2, according to the median of 14 forecasts in a Bloomberg survey.

The euro was bolstered by speculation officials will discuss combining the temporary European Financial Stability Facility and its permanent successor from July, the European Stability Mechanism, at this week’s meeting in Copenhagen. German Chancellor Angela Merkel said two days ago her country may back plans for the funds to run in parallel. Italian, Portuguese and Spanish 10-year government bonds rose.

Euro Holding

“For the moment, the market is happy to hold the euro at relatively high levels on the basis that there’s not going to be an absolute financial crisis emanating from Europe,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “Perhaps patience over the coming month will be tested.”

Implied volatility for three-month euro-dollar options, which indicates expected swings in the underlying currencies, fell to as low as 9.74 percent, the least since August 2008.

The yen strengthened amid speculation Japanese companies will repatriate overseas earnings before the end of the fiscal year on March 31.

“The yen move is driven by supply and demand before the final exchange-rate fixing of the fiscal year,” said Michiyoshi Kato, senior vice president of foreign-currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s second-largest bank by assets. “While there haven’t been a whole lot of orders from Japanese exporters to sell the dollar into the end of March, I think we’ll start to see some rise in demand to buy the yen.”

Economic Data

Bookings for U.S. durable goods, meant to last at least three years, advanced 2.2 percent, less than projected, after a revised 3.6 percent decline the prior month, data from the Commerce Department showed today in Washington. Economists forecast a 3 percent gain, according to the median forecast in a Bloomberg News survey.

“The euro has come down after the U.S. durable goods orders and market sentiment appeared to change,” said Carl Forcheski, a director on the corporate currency sales desk in New York at Societe Generale SA. “The euro is at the high end of its recent range and has had a lot of difficulty sustaining any upward move during its recent crisis and in the aftermath. It could head a little lower, but not much as I see some good support at $1.3173 up through $1.3238.”

Britain’s pound fell after a report showed the economy shrank more than first estimated in the fourth quarter, strengthening the case for the central bank to maintain asset purchases. U.K. gross domestic product dropped 0.3 percent from the previous three months, compared with an earlier estimate of 0.2 percent, data showed today. Bank of England Governor Mervyn King said yesterday he has an open mind on whether more monetary stimulus, or quantitative easing, is needed.

Sterling depreciated 0.6 percent to $1.5861.

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