The euro gained against the dollar amid speculation European leaders were making progress toward resolution of the region’s sovereign-debt crisis.
Europe’s shared currency declined earlier as Germany’s Bundesbank stepped up criticism of the European Central Bank’s plan for government-bond purchases and the ECB denied a Der Spiegel magazine report that it had discussed a plan to set yield limits on euro-bloc bonds. The euro erased losses after Greek Foreign Minister Dimitris Avramopoulos said his government will meet fiscal targets linked to its international bailout. The Australian dollar climbed against all of its most-traded counterparts on demand for higher-yielding assets.
The euro’s “weakness was basically driven by that Bundesbank monthly report,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a telephone interview. “In the bigger scheme of things, investors continue to come around to the view that the ECB under President Mario Draghi will have his way.”
The euro rose 0.1 percent to $1.2346 at 5 p.m. New York time, after falling as much as 0.3 percent. It depreciated 0.1 percent to 98.05 yen, after advancing 0.2 percent. It reached 98.41 yen on Aug. 17, the most since July 6. The dollar dropped 0.2 percent to 79.43 yen.
The 17-nation shared currency has declined 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 1.5 percent.
The Australian dollar was the strongest currency versus its U.S. peer as prospects the ECB will try to cap bond yields supported investor appetite for riskier assets. Gains by the Australian and New Zealand currencies against their U.S. counterpart were tempered on prospects the Federal Reserve will refrain from further monetary stimulus which could debase the greenback.
The Aussie added 0.2 percent to $1.0444. New Zealand’s currency gained 0.1 percent to 80.86 U.S. cents.
“The Aussie is the most interesting because of its relationship to China and as a barometer for global risk,” Miller Tabak’s Wilkinson said.
Brazil’s real declined as analysts covering its economy cut their 2012 growth forecasts for the third straight week. Gross domestic product will expand 1.75 percent, according to the median estimate in a central bank survey of about 100 analysts published today, down from last week’s estimate of 1.81 percent. The economists have reduced their growth estimates in 13 out of 15 weeks since May 7, and have held their estimates steady in the other two.
The real fell 0.1 percent to 2.0171 per U.S. dollar.
Draghi offered to buy Italy’s and Spain’s bonds on the market on Aug. 2 as long as the euro governments’ bailout fund makes purchases directly from the two countries’ treasuries and ties them to tough conditions.
“Government-bond purchases by the Eurosystem are to be seen critically and entail significant stability risks,” the Bundesbank said in its monthly report today. The new bond-buying program “could be unlimited” and decisions about potentially far greater sharing of solvency risks should be taken by governments, not by central banks, it said.
The comments “underline the Bundesbank stance, that it doesn’t really want to take on too much risk on its balance sheet,” said Chris Walker, a currency strategist at UBS AG in London.
Europe’s shared currency will weaken to $1.20 in the next three months, Walker predicted. Economists in a Bloomberg survey forecast the euro to trade at $1.21 at year end.
Avramopoulos commented after talks with German Foreign Minister Guido Westerwelle in Berlin. He declined to say whether Greece needs more time to meet targets within its current rescue program and agreed with Westerwelle that euro-area leaders need to await the next report of the so-called troika of international creditors, due in September.
The ECB issued a statement today saying a bond-yield cap has “not yet been discussed by the ECB’s governing council,” and it is “wrong to speculate on the shape of future ECB interventions.” It didn’t deny that ECB officials are considering the idea. The ECB’s next policy meeting is Sept. 6.
“They could put a cap on sovereign spreads and they could buy bonds, but these are all just different options,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “Nothing has actually been put into action. That’s why we’re seeing ranges here until there’s something more concrete.”
Futures traders increased their bets that the euro will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
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.
The euro may drop to the weakest against the pound in almost four years should the currency pair break below a key support level, Credit Suisse Group AG said, citing trading patterns.
The common currency may fall toward 76.94 pence, the low from October 2008, if it breaches support at 77.55 pence, David Sneddon, head of technical analysis in London, wrote in an e-mailed note to clients. That level represents the low from July 23, according to data compiled by Bloomberg.
The euro was little changed at 78.59 pence.