The euro extended gains to four-week high against the dollar after Spain retained its investment-grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access.
The 17-nation currency strengthened earlier to beyond $1.30 for the first time in a week amid speculation that Spain is moving toward asking for financial assistance, reducing concern the region’s debt crisis is worsening. The Canadian dollar fell against all its major peers after Bank of Canada Governor Mark Carney suggested he may reduce his economic outlook and delay raising policy interest rates.
“There’s renewed optimism about Spain, which is clearly a big part of the picture for euro strength,” Greg Anderson, the North American head of Group-of-10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “It’s also a risk-on day for markets generally. The dollar is weaker against most currencies.”
The euro reached $1.3099, the strongest level since Sept. 18. It climbed 0.8 percent to $1.3054 at 5 p.m. New York time, after reaching $1.3061, the strongest level since Oct. 5. Against Japan’s currency, it gained 1.1 percent to 102.98. The yen slipped 0.3 percent to 78.89 per dollar.
The shared currency may reach its highest level in nearly a month if it strengthens past its October high of $1.3074, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a research note yesterday. The euro may reach the $1.3150-to-$1.3172 area, which it last touched on Sept. 17, according to O’Connor.
Europe’s common currency has gained 0.9 percent in the past week, trailing behind the Swiss franc and Sweden’s krona among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. That cut its decline this year to 1.8 percent. The yen has fallen 5.3 percent in 2012.
Implied volatility among major currencies, which signals the expected pace of price swings, was 7.5 percent, matching the least since 2007. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five-year average is 12.4 percent.
Canada’s dollar weakened the most in almost three months against its U.S. peer after Carney made comments yesterday that his quarterly economic forecast next week will reflect a slowing global recovery.
“The governor omitted saying that a rate increase may become appropriate, signaling that there’s a change in policy at the Bank of Canada,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “His speech was relatively dovish, signaling that the new forecast update next week could be a downward revision.”
The so-called loonie, nicknamed for the image of the aquatic bird on the C$1 coin, slipped 0.6 percent to 98.66 cents per U.S. dollar. The currency fell as much as 0.7 percent, its biggest drop since July 23.
New Zealand’s dollar slid against its 16 major counterparts after a report showed consumer prices grew at the slowest pace in more than 12 years. The so-called kiwi, dropped 0.5 percent to 81.41 U.S. cents.
Moody’s assigned a negative outlook on the Baa3 sovereign debt as it concluded the review for possible further downgrade of Spain’s rating that it had initiated in June, the New York-based company said in a statement today.
Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as below investment grade. Standard and Poor’s has a negative outlook on its BBB- rating, one step above junk, and Fitch Ratings has Spain at BBB, two levels higher.
Comments by Michael Meister, a deputy caucus leader of German Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.
“Spain still needs to solicit support from the rest of the world before they go and use the outright monetary transactions mechanism provided by the European Central Bank,” Mike Moran, a senior currency strategist at Standard Chartered in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “There are a few more hurdles to jump through before we get to that point. We have a long, hard road ahead.”
Spain’s 10-year notes climbed to a euro-era high of 7.75 percent on July 25, the day before the European Central Bank chief pledged to preserve the euro. The yield fell one basis point, or 0.01 percentage point, to 5.81 percent today.
The Dollar Index, which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, declined 0.5 percent to 79.360.
Output at U.S. factories, mines and utilities rose 0.4 percent after a 1.4 percent decline in August that was the biggest since March 2009, the Federal Reserve reported today in Washington. The median estimate in a Bloomberg survey of 85 economists called for production to rise 0.2 percent. Manufacturing, which makes up 75 percent of the total, climbed 0.2 percent.
Fed Bank of St. Louis President James Bullard said U.S. growth will pick up next year.
“I still think it is reasonable to expect faster growth as we go forward,” Bullard said in a speech in St. Louis yesterday. “The normal expectation would be the effects start to dissipate” from headwinds that have included the European debt crisis and the slow housing recovery, he said.
International purchases of U.S. financial assets rose in August as investors sought shelter from the debt crisis in Europe, boosted by purchases from France, the U.K. and China.
Chinese holdings of Treasuries rose 0.1 percent this year through August to $1.15 trillion, Treasury Department data on international capital flows released today show. Japan, a stronger ally of the U.S., raised its stake by 6 percent to $1.12 trillion, on pace to top the list of foreign creditors by January.
The yen depreciated to 78.86 versus the greenback yesterday, breaking the 4.5-month trend-line resistance of 78.76, according to MacNeil Curry, head of foreign-exchange and interest-rates technical strategy in New York at Bank of America Merrill Lynch. The firm is targeting the yen to weaken to 80.56 to 80.60, and potentially to 81.88.