The euro climbed against the dollar by the most in almost a month after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the 17-nation currency.
The greenback remained lower versus most of its major peers after initial claims for jobless benefits fell more than forecast and durable-goods orders rose, damping demand for safety. The dollar fluctuated between gains and losses versus the yen, trading at almost an eight-week low. South Africa’s rand and New Zealand’s dollar gained as riskier assets rallied.
“Draghi’s comments were a surprise, as was their forcefulness,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, said in a telephone interview. “It appears that the ECB is willing to take additional steps to ease the funding problems of its members. We may be able to get three to four days of stabilization for the euro out of it.”
The shared European currency advanced 1 percent to $1.2283 at 5 p.m. New York time. It rose as much as 1.4 percent, the most since June 29, after touching $1.2043 on July 24, the lowest since June 2010. The euro appreciated 1.1 percent to 96.07 yen. The dollar was little changed at 78.21 yen, after falling to 77.94 yen on July 23, the least since June 1.
The euro’s advance pared its losses for July to 3 percent against the dollar and to 5 percent versus the yen.
The common currency fell 4.5 percent over the past three months, the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 7 percent, and the dollar rose 4 percent.
Canada’s currency reached a two-month high versus its U.S. counterpart as risk appetite increased. It appreciated 0.5 percent to C$1.0102 and reached C$1.0063, the strongest level since May 16.
“The Canadian dollar is reacting to Draghi’s very strong comments,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto, said in a telephone interview. “There’s a significant short covering in euro. Other markets are following suit on reduced risk aversion.” Short covering refers to buying a security to square earlier bets that it would fall.
South Africa’s rand was the biggest winner among major currencies. It gained 1.9 percent to 8.2375 per dollar after falling earlier as much as 0.7 percent on concern Europe’s debt crisis was worsening and China’s growth was slowing.
New Zealand’s dollar, nicknamed the kiwi, climbed 1.6 percent to 80.19 U.S. cents and touched 80.30 cents, its highest level in almost a week. Reserve Bank Governor Alan Bollard earlier left the country’s benchmark interest rates on hold and said the economy should grow “modestly.”
The Australian dollar appreciated for a second day, advancing 0.9 percent to $1.0397.
Implied volatility on three-month options for Group-of-Seven currencies declined for a second day, touching 9.31 percent, according to the JPMorgan G7 Volatility Index. It rose to 9.83 percent on July 24, the highest level this month. The average over the past five years is 12.4 percent.
Lower volatility makes investments in currencies of nations with higher benchmark interest rates more attractive because the risk in such trades is that market moves will erase profits. Key rates are 5 percent in South Africa and 3.5 percent in Australia, versus zero to 0.25 percent in the U.S. and 0.75 percent in the euro region.
The ECB chief’s pledge spurred speculation policy makers may be preparing to unveil new measures to fight the region’s debt crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm Europe’s rescue funds. ECB council member Ewald Nowotny said this week there were arguments in favor of giving the region’s rescue fund a banking license, which would provide it with greater firepower.
Draghi spoke today at the Global Investment Conference in London, saying surging sovereign-bond yields may fall within the ECB’s jurisdiction. Spanish yields have exceeded the 7 percent level that prompted bailouts for Greece, Portugal and Ireland.
“The Draghi remarks seem to imply that the ECB could soon take measures to help alleviate the selling pressure on the bonds of the weak peripheral countries in the euro zone,” Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Citigroup Inc. in London, said in an interview. “More action in that direction ahead of the ECB meeting on Aug. 2 could be very beneficial for the single currency.”
Market expectations for central-bank action could push the euro up further against the greenback in the near term, Marinov wrote in a note today.
Yields on the Spanish government’s 10-year bonds declined to 6.93 percent today after climbing to a euro-era record of 7.75 percent yesterday.
While the shared currency will probably trade at current levels through August, it may fall to between $1.15 and $1.20 in September, according to Kit Juckes, head of foreign-exchange research at Societe Generale SA.
“The central bank is doing everything it can; the challenge is with the politicians,” London-based Juckes said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Sara Eisen. “What we need to solve is the crisis of financing the banking system and the governments.”
Lending to households and companies in the 17-nation euro area contracted for a second month in June and at a faster pace as the sovereign debt crisis intensified.
Loans to the private sector declined 0.2 percent from a year earlier after dropping an annual 0.1 percent in May, the Frankfurt-based European Central Bank said today. That was the first contraction since March 2010.
The dollar remained lower against the euro after Commerce Department data showed orders for U.S. durable goods increased more than forecast in June, rising 1.6 percent. A surge in demand for aircraft and military hardware overshadowed a slump in business equipment spending. Fewer Americans than forecast, 353,000, filed initial claims for unemployment benefits last week, a Labor Department report said.
U.S. economic growth slowed to an annualized 1.4 percent in the second quarter, a Bloomberg survey forecast before the Commerce Department reports the data tomorrow. The pace for the first quarter was 1.9 percent.
Federal Reserve policy makers will open a two-day meeting on July 31.