Euro Advances to Six-Week High on Greece Crisis Optimism

Luxembourg's Prime Minister Jean-Claude Juncker
Jean-Claude Juncker, Luxembourg's prime minister and president of the Eurogroup. Photographer: Jock Fistick/Bloomberg

The euro rose to six-week highs against the dollar and yen before regional leaders meet this week to discuss Greece’s fiscal adjustment program amid optimism the European debt crisis is being contained.

The 17-nation currency appreciated for a second day versus the greenback after Germany indicated concessions for Greece were possible and as Spanish borrowing costs declined at a bill auction. The dollar weakened against most of its 16 major counterparts before a report tomorrow forecast to show U.S. home sales improved last month, reducing demand for safer assets. Sweden’s krona gained as a central-bank official said economic growth has been “unexpectedly” strong this quarter and the currency has strengthened more than estimated.

“The euro continues to be buoyed by investors’ selectively optimistic reading of official statements supporting bailout packages and the periphery,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said in a telephone interview. “We’re still in this revolving door of crisis cycle with nothing getting resolved.”

The euro rose 1 percent to $1.2473 at 5 p.m. New York time after advancing to $1.2488, the strongest since July 5. The single currency strengthened 0.9 percent to 98.89 yen after touching 99.18 yen, the highest level since July 6. The dollar declined 0.2 percent to 79.29 yen.

Krona, Aussie

Riksbank First Deputy Governor Kerstin af Jochnick said Sweden’s strong growth needs to be weighed against “slightly weaker” developments abroad. The central bank will announce its next interest-rate decision Sept. 6 after leaving it unchanged at 1.5 percent for a second consecutive meeting last month. It has cut rates twice since December as Europe’s debt crisis threatened an expansion in the largest Nordic economy.

The krona rose 0.3 percent to 6.6575 versus the dollar and has added 4 percent this quarter, the most among the greenback’s most-traded peers.

Australia’s dollar rose the most in two weeks versus the greenback after minutes of the central bank’s August meeting showed policy makers see domestic growth overshadowing a “fragile” global outlook. The Reserve Bank of Australia made no mention of intervening to curb the currency’s strength. The central bank kept its benchmark interest rate unchanged at 3.5 percent for a second month.

The Aussie added 0.4 percent to $1.0487 after gaining as much as 0.7 percent, the biggest intraday rise since Aug. 3.

The pound fell against the euro as Britain unexpectedly posted a budget deficit in July and a report showed manufacturing orders declined to an eight-month low in August, adding to signs the U.K. economy is slowing.

Sterling weakened 0.5 percent to 79.01 pence against the euro after depreciating to 79.08 pence, the weakest level since Aug. 8. The pound gained 0.5 percent to $1.5787.

Fed Outlook

The dollar fell before data tomorrow may show sales of existing homes in the U.S. increased to an annual rate of 4.51 million in July from 4.37 million in June, according to a Bloomberg survey of economists. Orders for durable goods accelerated last month, a separate Bloomberg survey forecast before the data on Aug. 24.

Along with stronger-than-forecast retail and jobs data earlier this month, these reports may help reduce the likelihood that Chairman Ben S. Bernanke and the Federal Reserve will start a third round of debt purchases under quantitative easing. The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two previous rounds.

‘Back Pocket’

“They’re keeping QE3 in their back pocket to play it whenever they need to,” Kit Juckes, the head of foreign-exchange research in London at Societe Generale SA, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “The option is do nothing or ease more. Ben Bernanke is the most dovish central banker that has ever walked this Earth and he’s ready to do anything it takes to make sure there’s a sustained recovery.”

The Fed will release minutes tomorrow of its July 31-Aug. 1 policy session. It meets next Sept. 12-13.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six U.S. trading partners, dropped 0.7 percent today to 81.885, after falling to 81.793, the lowest level since July 4.

Greek Visit

The euro gained as a senior lawmaker with German Chancellor Angela Merkel’s party said concessions are possible for Greece so long as Prime Minister Antonis Samaras shows a willingness to meet the main targets set out in his country’s bailout program.

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

Spain sold 4.5 billion euros ($5.6 billion) of 364- and 546-day bills. The average yield on the one-year securities was 3.07 percent, compared with 3.92 percent at a previous auction on July 17. Investors bid for 1.91 times the number of securities allotted, down from 2.23 times at the previous sale.

Even as reports during the weekend that the ECB may cap interest rates “were dismissed as premature” by bank officials, press coverage since suggests policy makers at their Sept. 6 meeting will consider steps to contain borrowing costs in peripheral countries, Royal Bank of Scotland said today in a research note.

‘Squeeze Higher’

Five year credit-default swaps tied to Spain fell to 465 basis points yesterday, the lowest since April, according to data provider CMA, which is owned by McGraw-Hill and compiles prices quoted by dealers in the privately negotiated market. The decline in the cost to protect against a Spanish sovereign default and an increase in investor appetite for risk are “supportive” of the euro’s rally against the dollar, RBS said.

“While the euro is likely to continue to squeeze higher during the run-up to the early-September ECB meeting, those gains are likely to be limited,” RBS said. “We remain oriented to re-establishing short euro exposure, but from higher levels.” A short is a bet that a security or currency will decline in value.

Europe’s shared currency has advanced 0.7 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 2.1 percent and the yen declined 3.2 percent.

“The pure fundamentals of it are that the euro should be selling off,” said Yra Harris, chief trader and analyst at Praxis Trading in Chicago. “If you’re printing all the money you have to to get this bond-buying problem in place, that would ultimately be bearish for the currency. You’re just getting a short-cover rally.”

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