The euro rose from a seven-week low against the dollar as Italian and Spanish bond trimmed losses on easing concern inconclusive elections in Italy may deepen Europe’s debt crisis.
The euro fluctuated against the greenback as investors bet the European Central Bank will step in to limit any losses in so-called peripheral bonds. The yen weakened on speculation Japan’s Prime Minister Shinzo Abe will select Haruhiko Kuroda, who favors additional stimulus, as the next central bank governor. The Dollar Index advanced to the highest in six months after Federal Reserve Chairman Ben S. Bernanke defended the central bank’s asset-purchase program.
“It doesn’t really matter at the end of the day who the prime minster of Italy is, it’s just the fact that the anti-austerity, anti-European movement is getting a lot of traction,” Alfonso Esparza, senior currency analyst in Toronto at the online currency trading firm Oanda Corp., said in a telephone interview. “There’s no clear winner, so that’s not exactly the news they expected.”
The euro was little changed at $1.3061 at 5 p.m. in New York after dropping to $1.3018, the weakest level since Jan. 7. The single currency gained 0.2 percent to 120.14 yen. Japan’s currency slid 0.2 percent to 91.98 per dollar.
The 17-nation currency may decline to its lowest level since Nov. 23 if it breaks a key level of support, Cilline Bain, a London-based technical analyst at Credit Suisse, wrote today in a note to clients. The euro might fall to $1.2876 if it declines past support at $1.2998, he said. Support is an area on a chart where buy orders may be clustered.
The rand rose for a fourth day against the dollar as Statistics South Africa said gross domestic product increased an annualized 2.1 percent last quarter, compared with 1.2 percent in the previous three months.
South Africa’s currency advanced 0.5 percent to 8.8183 per dollar after climbing to 8.7801, the strongest since Feb. 15.
Switzerland’s franc rose to a six-week high against the euro amid speculation Italy will require a second vote following the inconclusive elections, boosting demand for the relative safety of the franc. The currency was little changed at 1.2177 per euro after earlier climbing as much as 0.5 percent.
The Russian ruble weakened as the government shelved an auction of 15-year debt as bonds dropped and concern mounted over the potential worsening of Europe’s debt crisis. The Russian currency fell 0.8 percent to 30.6784 per dollar.
The Dollar Index rose as Bernanke in his semi-annual testimony on monetary policy to the Senate Banking Committee today said so-called quantitative easing is supporting the economic expansion with little risk of inflation or asset-price bubbles.
“We do not see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said today.
The chairman said automatic federal budget cuts set to begin March 1 will put a “significant” burden on the economy and urged lawmakers to put the budget on a “sustainable long-run path.”
“One thing that Bernanke said, and financials lifted a little bit on, is that U.S. banks are safe enough, regardless of what happens to Italian banks,” Fabian Eliasson, vice president of corporate foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a telephone interview. “The volatility is definitely back in play here.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, gained 0.2 percent to 81.848 after touching 81.948, the highest since Aug. 22.
The 17-nation currency halted losses from yesterday as Italian ex-Premier Silvio Berlusconi acknowledged rival Pier Luigi Bersani’s victory in the lower house and said he’s open to a broad alliance to avoid a second election. No formal steps can be taken until a new parliament convenes March 15.
The yield on Italian 10-year bonds was 41 basis points, or
0.41 percentage point, higher at 4.89 percent after increasing as much as 44 basis points. Similar-maturity Spanish yields trimmed their increase to 20 basis points from as much as 43 basis points.
The euro has fallen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen has gained 0.9 percent and the dollar has added 2.2 percent to lead gainers.
Three-month implied volatility on the euro-dollar exchange rate rose as high as 9.53 percent, the most since Sept. 7, before being little changed today at 9.18 percent.
“The elections say that the trend compression of the euro-zone risk premium has a limit, and it’s probably not going to continue, so it’s been priced out,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “We probably won’t have any existential tail risk as a result of this.”
The yen tumbled 4 percent this year, the second worst performer after the pound among the currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.4 percent and the dollar added 2.5 percent, the most after the Swedish krona’s 3.3 percent rise.