Euro Holds Gain as Leaders Prepare for Debt Crisis Talks

Luxembourg's Prime Minister Jean-Claude Juncker
Jean-Claude Juncker, Luxembourg's prime minister and president of the Eurogroup heads the group of euro-area finance ministers, will discuss the request by Greece’s Prime Minister Antonis Samaras for a two-year extension to the indebted nation’s fiscal adjustment program when he visits Athens on Aug. 22. Photographer: Jock Fistick/Bloomberg

The euro rose against the dollar, extending a gain from last week, amid optimism Europe’s leaders meeting this week will signal support for Greece and outline fresh measures to combat the region’s debt crisis.

Europe’s shared currency rose toward a six-week high against the yen after Germany’s Spiegel magazine reported the European Central Bank’s governing council may decide at its next gathering to set yield limits on each country’s debt. The dollar fell from the most in more than a month against Japan’s currency and the Australian dollar climbed against all of its major counterparts tracked by Bloomberg amid stronger demand for higher-yielding assets.

“The market is concentrating on political news,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “There’s a lot of negative news priced in about Greece and if the politicians sound constructive on that it may support the euro. There are also a lot of rumors about what the ECB might do.”

Europe’s shared currency advanced 0.1 percent to $1.2351 at 8:51 a.m. London time after climbing 0.4 percent last week. It added 0.1 percent to 98.19 yen after rising 2 percent in the five days ended Aug. 17. The dollar weakened 0.1 percent to 79.50 yen after earlier touching 79.66, the strongest since July 12. The Australian dollar rose 0.3 percent to $1.0455.

Rate Cap

The Frankfurt-based central bank may set limits on yields by pledging unlimited bond purchases, Spiegel reported yesterday, without saying where it obtained the information. The policy will be decided at the September governing council meeting, the magazine said. An ECB official declined to comment on the report.

A policy that sees the ECB printing money will ultimately be negative for the euro, Leuchtmann said, predicting the currency will weaken to $1.20 in three months. The currency will end the year at $1.21, according to the medium estimate of 53 analysts in a Bloomberg survey.

Luxembourg’s Prime Minister Jean-Claude Juncker, who also heads the group of euro-area finance ministers, will discuss a request by Greece’s Prime Minister Antonis Samaras for a two-year extension to the indebted nation’s fiscal adjustment program when he visits Athens on Aug. 22. Samaras travels to Berlin and Paris on Aug. 24 and 25 after French President Francois Hollande and German Chancellor Angela Merkel meet in the German capital on Aug. 23.

There is scope for Europe’s shared currency to test the $1.2440 area after it breached $1.2340, Marc Chandler, New York-based global head of currency strategy at Brown Brothers Harriman & Co., wrote in an e-mailed note to clients yesterday. However, “medium-term participants may want to scale into a short position as the risks still favor a further euro decline,” he wrote.

Net Shorts

A short position is a bet an asset will fall. The $1.2440 level was last seen on Aug. 7, when the euro climbed to as high as $1.2442, according to data compiled by Bloomberg.

Traders raised bets that the euro will decline against the dollar. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 137,810 on Aug. 14, compared with net shorts of 131,711 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

The euro has declined 8.9 percent in the past year, the worst performance after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 7.5 percent, while the yen added 1.4 percent.

Fed Minutes

The Federal Reserve is due to release on Aug. 22 minutes of its two-day gathering that concluded on Aug. 1, when officials refrained from boosting monetary stimulus, a move which may debase the U.S. currency. Members of the Federal Open Market Committee will next meet on Sept. 12-13.

The Fed bought $2.3 trillion of mortgage and Treasury debt between 2008 and 2011 in two rounds of so-called quantitative easing to cap borrowing costs. Policy makers have held the bank’s key rate in a range of zero to 0.25 percent since 2008 and plan to keep it there at least through late 2014.

Credit Suisse Group AG economists Neal Soss and Dana Saporta said the probability of the U.S. central bank announcing another round of asset purchases at its meeting next month has declined, with the odds of further easing in September now no better than 50 percent.

“Our assumption remains that the next policy move will be toward still more accommodation, but the timing of such a decision has become more uncertain,” the New York-based economists wrote in a report yesterday.

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