The euro had its biggest gain against the yen in nine months on speculation Europe’s policy makers will agree to keep aid flowing to Greece next week.
The shared currency gained the most in two months versus the dollar as German business confidence unexpectedly rose from the lowest in 2 1/2 years. The yen fell at least 1.2 percent against all of its 16 most-traded counterparts as exports waned and amid speculation Japanese elections next month will hand power to an opposition party that advocates aggressive monetary easing. The dollars of Australia and Canada gained after the International Monetary Fund said the two may be classified as reserve currencies.
“The euro’s strength is mostly short covering -- investors getting nervous in case we do get some kind of announcement on a Greek debt buyback or cuts to the interest rates on loans,” Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London said Nov. 23. “Comments by the potentially new political leader have really been driving the yen in a way we really haven’t seen play out before. Low market volatility is really letting the yen weaken off.”
A short is wager an asset will weaken, and short covering involves investors buying an asset to offset a prior sale.
The euro rallied to 106.98 yen on Nov. 23, the highest since April, before trading at 106.94 for a 3.2 percent weekly advance, the most since the five days ended Feb. 24. The shared currency touched $1.2991 on Nov. 23, the strongest in three weeks versus the dollar, and ended the week 1.8 percent stronger at $1.2976. The yen fell for a second week against the dollar, declining 1.3 percent to 82.40. It reached 82.84 on Nov. 22, the weakest in more than seven months.
European finance ministers said a further meeting on Greece had been arranged for Nov. 26 and that only “technical problems” are holding up a deal. Among the options they are considering include recycling European Central Bank profits on Greek bonds, charging Greece lower interest rates and extending repayment deadlines.
The Munich-based Ifo institute said its business climate index climbed to 101.4 this month, compared with an estimated reading of 99.5 based on the median of 48 forecasts in a Bloomberg survey.
The yen has fallen 3.8 percent in the past month, the most among the 10 developed currencies measured by Bloomberg Correlation-Weighted Indexes. The euro is the second-worst performer, losing 0.5 percent, while the dollar has declined 0.4 percent.
Shinzo Abe, leader of the Liberal Democratic Party that is favored to topple the ruling Democratic Party in Dec. 16 elections, has advocated an increase in the central bank’s inflation goal to as much as 3 percent from 1 percent.
The yen extended its decline even after the Bank of Japan completed a two-day policy meeting this week where Bank of Japan Governor Masaaki Shirakawa said the opposition party’s proposals to weaken the currency are unrealistic.
Japan’s exports decreased for a fifth straight month, falling 6.5 percent in October from a year earlier, leaving a trade deficit of 549 billion yen ($6.7 billion), according to a report on Nov. 20.
“The yen got an extra push because of the trade-balance figures,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said Nov. 21. “It showed a deficit that was larger than expected, which is putting pressure on the yen because Japan is an export-driven economy.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, dropped 1.3 percent to 80.217. It was the first weekly decline since the five days ended Oct. 19.
The dollar fell against most of its major counterparts as U.S. lawmakers expressed optimism the $607 billion in automatic tax increases and spending cuts scheduled to take effect at the beginning of 2013 unless Congress acts would be avoided. The dollar usually gains in times of economic stress as investors seek the world’s reserve currency as a haven.
House Speaker John Boehner, who called Nov. 16 discussions with Obama “constructive,” said Republicans are willing to put revenue on the table in exchange for spending cuts.
“I’m assuming these people aren’t stupid, but I’d like them to prove it,” Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said Nov. 23. “If you remove the problem of the fiscal cliff, there is a danger the U.S. economy could surprise on the upside next year.”
The Canadian and Australian dollars advanced after the International Monetary Fund said in a Nov. 14 report that the two currencies “are to be considered for inclusion” separately in the IMF’s “Currency Composition of Official Foreign-Exchange Reserves” data. They’ve previously been included in an “other currencies” category in the Washington-based lender’s COFER reports.
The Canadian dollar, nicknamed the loonie, advanced 0.8 percent to 99.29 cents per U.S. dollar, in the biggest weekly gain since Aug. 10. The Aussie was 1.2 percent stronger at $1.0461.
Sweden’s krona was the best performer against the dollar after a survey of Swedish industrial companies showed investments are expected to rise 9 percent this year, Statistics Sweden said Nov. 21. The report damped concern over the economy amid reports of slumping exports and job cuts.
The krona rallied 2.5 percent against the dollar to 6.6228, the largest weekly gain in nine months. The Swedish currency advanced 0.7 percent to 8.5937 versus the euro.