Euro Gains Most in Week Against Dollar After Italy Sells Bills

The euro gained the most in more than a week versus the dollar after Italy’s debt sale damped concern nations in the currency bloc won’t be able to access the debt markets.

Europe’s common fell earlier amid reports quoting European Central Bank Governing Council member Luc Coene saying bond purchases won’t solve Spain’s and Italy’s difficulties. New Zealand’s dollar weakened against the greenback after Finance Minister Bill English said the country would prefer a weaker currency. South Africa’s rand and Brazil’s real led declines against the dollar as global stocks fell.

“The auctions are one of the few things to focus on right now so it may be getting a little more attention for whether it went well,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “The euro should trade in a range of $1.2170 to $1.2405 in coming weeks. A lot has been promised by the ECB and it’s been a case of wait-and-see.”

The euro gained 0.4 percent to $1.2332 at 5 p.m. in New York, posting its biggest intraday gain since Aug. 3. It earlier fell 0.2 percent. The shared currency rose 0.4 percent to 96.58 yen after slipping 1.1 percent last week. The yen was little changed at 78.32 per dollar.

Italy’s Debt

Italy sold the 364-day bills at 2.767 percent, up from 2.697 percent at the last sale of similar-maturity debt on July 12. Investors bid 1.69 times the amount of bills sold, up from 1.55 times last month. Greece is scheduled to sell bills tomorrow. It sold 182-day bills at 4.68 percent on Aug. 7.

LCH Clearnet Ltd., Europe’s biggest clearing house, raised the extra deposit it demands from clients to trade some Spanish and Italian government bonds.

The euro was 0.6 percent stronger against nine developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes, the best one-day performance. New Zealand’s and Australia’s dollars were the biggest losers with a 0.5 percent declines.

“It’s a positive that the auction went smoothly, even though yields were higher than before,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “There have been periods of the euro decoupling from risk sentiment. Today, it’s a case of euro stronger and the risk sensitive currencies are not.”

Futures Positioning

The euro was also buoyed as investors ended some of their bets the euro would fall against the dollar. Futures traders and other large speculators pared wagers the euro would depreciate against the dollar in the week ending Aug. 7, to a net of 131,711 contracts.

Spanish and Italian bonds rose and the euro gained earlier this month after ECB President Mario Draghi said the Frankfurt-based central bank may buy government debt in conjunction with euro-area bailout funds. The ECB later said it may take such measures only if troubled nations commit to improving their economies and fiscal positions.

Bond yields have been rising because financial markets don’t trust Spanish and Italian authorities to take the measures necessary to repair their economies, ECB’s Coene said in an interview with De Tijd and L’Echo published Aug. 11.

“If the periphery is going to come back at the top of the agenda, it’s going to be in September, when the ECB starts fleshing out the detail of its bond-buying program and markets start to press Spain and Italy to request help,” said Adam Cole, head of global currency strategy at Royal Bank of Canada Europe Ltd. in London. “There are all kinds of pressure points coming up.”

Real, Rand

Brazil’s real fell 0.3 percent to 2.0209 per dollar and South Africa’s rand declined 0.7 percent to 8.1495 per dollar after a report of slowing growth in Japan.

The pace of economic growth in Japan cooled to an annualized 1.4 percent in the second quarter from a revised 5.5 percent in the first three months of the year, the Cabinet Office said in Tokyo today. The euro-area economy shrank 0.2 percent in the second quarter from the previous three-month period, according to the median estimate of analysts surveyed by Bloomberg before tomorrow’s data.

The Standard & Poor’s 500 Index fell 0.1 percent and the Stoxx Europe 600 Index was 0.3 percent weaker.

The so-called kiwi declined against most of its 16 major counterparts, falling 0.5 percent to 80.92 U.S. cents.

“We would prefer that the New Zealand dollar was a bit lower so we could get the rebalancing in the economy moving with a bit more momentum,” English said in Wellington today. “It’s a continued challenge for exporters to be profitable at 80 cents.”

The correlation between the currency and global stocks has fallen from record highs, according to data compiled by Bloomberg, and the relationship to raw material costs is also fading. Pacific Investment Management Co. and Kokusai Asset Management Co. are adding to bond holdings as New Zealand concentrates on containing inflation, keeping interest rates at least 2 percentage points higher than in the U.S. and the U.K.

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