Euro Advances Against Dollar on Easing Italy Concern, Bernanke

The euro rose for the first time in three days against the dollar as concern eased that Italy’s election deadlock would deepen Europe’s debt crisis and Federal Reserve Chairman Ben S. Bernanke said the bank’s stimulus policies are working.

The 17-nation currency climbed from almost a seven-week low yesterday as a report showed economic confidence in the region improved this month. The yen declined versus the majority of its 16 most-traded peers before Prime Minister Shinzo Abe submits his nomination for the next Bank of Japan governor tomorrow. The Dollar Index fell for the first time in six days as Bernanke concluded two days of congressional testimony in Washington.

“The Italian auction was seen as being relatively positive by the market,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “Bernanke’s comments didn’t have much of an impact because they don’t really stray much from what he said yesterday.”

The euro gained 0.6 percent to $1.3139 at 5 p.m. in New York after falling to $1.3018 yesterday, the lowest level since Jan. 7. The single currency climbed 0.9 percent to 121.17 yen. The yen dropped 0.3 percent to 92.24 per dollar after sliding to 94.77 on Feb. 25, the weakest since May 2010.

The dollar advanced 1.8 percent this month, the second most after Sweden’s krona among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen added less than 0.1 percent and the euro dropped 0.9 percent.

Rand, Peso

The South African rand weakened the most in nearly two weeks against the dollar as Finance Minister Pravin Gordhan said the budget deficit in Africa’s largest economy will probably widen this year as economic growth slows. The currency was little changed at 8.8174 per dollar after falling 0.8 percent, the most since Feb. 15.

Mexico’s peso gained for the first time in three days after central bank board member Manuel Sanchez said he doesn’t see a case for the country’s first benchmark rate cut since July 2009. The currency rose 0.6 percent to 12.7652 per dollar after appreciating to 12.7585.

Hungary’s forint fell to its weakest in four weeks on speculation the central bank will keep cutting interest rates and may take other steps to ease monetary policy after a new chief takes over next week. The forint slid as much as 0.5 percent to 296.47 per euro, the weakest since Jan. 30, before trading at 295.23.

Bernanke’s View

The Dollar Index fell as Bernanke told the House Financial Services Committee that the central bank’s easing policies are helping to improve demand for homes and cars, and that the housing market is recovering. He was continuing his semi-annual testimony to Congress after speaking yesterday in the Senate.

“The fact that interest rates have gone up a bit is actually indicative of a stronger economy,” Bernanke said, an indication the Fed’s stimulus is working.

The central bank is buying $85 billion of Treasury and mortgage bonds a month to put downward pressure on interest rates.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.4 percent to 81.567 after rising to 81.948 yesterday, the highest since Aug. 22.

‘Temporary Respite’

Italy’s 10-year bonds advanced as the Treasury sold 4 billion euros ($5.25 billion) of new 10-year securities and 2.5 billion euros of five-year notes, meeting its target. It sold the 10-year debt at an average yield of 4.83 percent, versus 4.17 percent at a previous auction Jan. 30.

“The fact we haven’t seen a further capitulation in Italian bonds is providing some temporary respite for the euro,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There is still uncertainty ahead and the underlying message is the euro zone’s crisis is not over.”

Italian political leaders sparred over forming a government after inconclusive elections fueled concern about the outlook for the euro region and the country’s deepening recession.

Beppe Grillo, whose anti-establishment movement was the top vote-getter in Italy’s election this week, rejected a call made yesterday by Democratic Party leader Pier Luigi Bersani to back a coalition.

An index of euro-area executive and consumer sentiment rose to 91.1 from a revised 89.5 in January, the European Commission in Brussels said. Economists had forecast an increase to 89.9, according to a Bloomberg News survey.

Japan’s currency rose as Chief Cabinet Secretary Yoshihide Suga said Abe will submit his nominations for the next BOJ chief and two deputies tomorrow.

The yen has tumbled 16 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, as Abe signaled he will push the central bank to boost monetary stimulus that tends to weaken a currency. It gained 1.3 percent in the past week.

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