Euro Strengthens Versus Major Peers as Emerging Currencies Drop

The euro rose against the dollar for the first time in three days amid speculation last week’s drop to the lowest level in almost two months was excessive.

Emerging-market currencies fell after a typhoon swept across the Philippines and as traders weigh the likelihood of reduced Federal Reserve stimulus. The 17-nation shared currency pared a decline from last week, when a report showed the U.S. economy added more jobs in October than analysts forecast and the European Central Bank unexpectedly trimmed its key interest rate. Brazil’s real declined to a two-month low on concern the nation’s budget deficit will lead to a credit-rating downgrade.

“There’s now very finite downside to the euro,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a phone interview. “The likelihood of a fresh ECB reduction is pretty low, and I think that’s probably support for the euro when risk appetite is generally perceived to be on.”

The euro climbed 0.3 percent to $1.3407 at 5 p.m. New York time after dropping to $1.3296 on Nov. 7, the lowest level since Sept. 16. The 17-nation currency added 0.4 percent to 132.94 yen. The dollar gained 0.1 percent to 99.16 yen.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed at 1,020.88 after rising to 1,024.31 on Nov. 8, the highest since Sept. 13.

Killer Storm

The Philippine peso tumbled the most in a month versus the dollar after the year’s most powerful typhoon flattened buildings and unleashed storm surges that may have killed as many as 10,000 people, and as a new storm approaches.

The peso fell 0.9 percent to 43.585 per dollar, the lowest close since Sept. 17. The Philippine Stock Exchange Index fell for a seventh day, declining 1.4 percent, the steepest plunge since Sept. 30.

The Thai baht dropped 0.6 percent to 31.650 per dollar. South Korea’s won weakened 0.7 percent to close at 1072.46 per dollar in Seoul.

The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 major currencies excluding the yen, fell 0.3 percent to 115.71 after touching 115.69, the lowest level since Oct. 1.

Brazil’s currency has fallen 4.1 percent since Oct. 31, the most among major currencies, when the government reported that the deficit as a percentage of gross domestic product was the largest in almost four years. Standard & Poor’s may lower Brazil’s BBB credit rating if fiscal accounts worsen, Regina Nunes, a managing director at the company, said in an interview last week.

The real slid 0.8 percent to 2.3318 per dollar after touching 2.3425, the weakest level on a closing basis since Sept. 4.

‘A Steal’

“Now we’ve got to deal with the onset of tapering and whether it has further any material impact on emerging-markets currencies, and ultimately it probably won’t,” said Wilkinson of Miller Tabak. “Markets have to find that out for themselves first. These emerging markets are probably a steal after the sell off, but as ever that’s a dangerous game.”

An equally weighted basket of the so-called BRICS emerging-market currencies fell against the dollar to 115.98, the lowest level since Sept. 10. BRICS refers to Brazil, Russia, India, China and South Africa.

Economists still forecast the Fed will delay tapering asset purchases until March even after a report last week showed employers added more jobs than forecast in October.

Policy makers will pare the monthly pace of bond buying to $70 billion at their March 18-19 meeting from the current pace of $85 billion, according to the median of 32 economist estimates in a Bloomberg News survey on Nov. 8. The median forecast in an Oct. 17-18 survey of 40 economists also called for a reduction to $70 billion in March.

‘Uncomfortably High’

The euro declined last week after ECB President Mario Draghi cut its main refinancing rate to a record-low 0.25 percent on Nov. 7.

The move came amid signs global currency wars may be heating up again. The day of the ECB cut Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna. New Zealand has said it may delay rate increases to temper its dollar, and Australia warned the Aussie is “uncomfortably high.”

“Despite the U.S. jobs data on Friday, despite the ECB rate cut, the technical factors make it seem like the euro should go higher first,” Marc Chandler, the New York-based chief currency strategist at Brown Brothers Harriman & Co., said in a phone interview. “Basically what we’re telling our clients is don’t chase the euro lower, look for a bounce to sell into.”

Options Trading

Trading in over-the-counter foreign-exchange options totaled $45 billion, down from $57 billion on Nov. 8, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $20 billion, the largest share of trades at 45 percent. Options on the euro-dollar rate totaled $5 billion, or 12 percent.

Dollar-yen options trading was 175 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 2 percent less than average.

The euro gained 5.8 percent so far this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid optimism the region is bringing its sovereign-debt crisis under control. The yen weakened 10 percent, while the dollar advanced 3.9 percent.

Before it's here, it's on the Bloomberg Terminal.