The euro rose from a one-month low versus the dollar amid optimism European leaders are tackling their debt crisis after Italy’s Senate approved an austerity bill yesterday and Greece swore in a new prime minister.
The 17-nation currency pared a weekly loss versus the greenback to 0.3 percent as Italian bonds rose, pushing yields below the 7 percent level that led Greece, Ireland and Portugal to seek bailouts. The euro fell earlier on concern the debt crisis was worsening and before data next week that may show the region’s economic growth stagnated.
“We had one week of good progress, and now hopefully we’ll have technocrats in charge in Greece and Italy,” said Greg Anderson, a senior currency strategist at Citigroup Inc. in New York. “Markets at this point will demand implementation. There’s a lot that needs to be done before the deep underlying fears are resolved.”
The euro declined versus the dollar to $1.3750, from $1.3792 on Nov. 4, after rallying 1.5 percent in the past two days. It touched $1.3484 on Nov. 10, the weakest level since Oct. 10. Europe’s shared currency slid 1.7 percent against the yen to 106.10, its biggest weekly loss since the five days ended Sept. 23.
The Japanese currency gained 1.4 percent to 77.20 per dollar, the most in a week since Aug. 12. The yen rose against all of its 16 most-traded peers after tumbling 3.1 percent last week, the most since April, following the Bank of Japan’s sale of yen on Oct. 31 to weaken the currency. Investors bet this week the nation would refrain from further aggressive steps.
Three-Month Gain
The yen gained 1.9 percent versus nine developed-nation peers over the past three months, according to the Bloomberg Correlation-Weighted Currency Indexes. The dollar climbed 4.1 percent, and the euro rose 0.5 percent.
The euro dropped 2.1 percent on Nov. 9, the most on a closing basis since August 2010, as Italy’s 10-year government bonds fell, pushing up yields to as high as 7.48 percent. The securities slid as LCH Clearnet SA, a clearing house that guarantees investors’ trades are completed, boosted the deposit it demands from clients to trade Italian government bonds.
The shared currency rebounded after Italy drew double the bids for the amount on offer at a bill sale and political wrangling in Greece, where the two-year debt crisis began, produced a new government charged with the immediate task of securing funds to avert an economic collapse. Former European Central Bank Vice President Lucas Papademos was sworn in yesterday as prime minster.
Italian Austerity Bill
The austerity legislation in Italy stemmed from a 45.5 billion-euro ($63 billion) package initially passed by Parliament in September that helped convince the ECB to buy Italian bonds to try to contain surging borrowing costs.
In a bid to shore up international confidence, Prime Minister Silvio Berlusconi presented a timetable for implementing some of them to European Union leaders and is now converting that plan into law. EU leaders pushed the nation to implement it.
Group of 20 nations policy makers at a summit last week in Cannes, France, demanded details of a Greek rescue package and refused to commit new money to the region’s debt crisis, reflecting irritation with Europe’s failure to resolve it.
Italy’s Chamber of Deputies will give final approval to the austerity legislation today and Berlusconi will resign “a minute later,” Chamber Speaker Gianfranco Fini said. The new government may be led by former EU Competition Commissioner Mario Monti.
The euro region’s gross domestic product grew 0.2 percent in the third quarter, the same as in the second quarter and lowest level since the three months ended in June 2009, when it was contracting, according to analysts in a Bloomberg News survey before the EU reports the data Nov. 15.
Japan on Guard
The yen reached its strongest level versus the dollar yesterday since Japan intervened last month, touching 77.05. Finance Minister Jun Azumi said he’s on guard against speculative yen trades. He declined to comment on whether the nation has been selling the currency this month.
Japan took the action after the yen reached a post-World War II high of 75.35 per dollar on Oct. 31. Barclays Plc and Tokyo-based Totan Research Co. estimated the nation sold 8 trillion yen ($103 billion) that day, based on changes in the central bank’s balance sheet.
“There are indications the Bank of Japan stepped away from intervening after the G-20 summit,” Lee Hardman, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said yesterday. “Now that risk of intervention is reduced, I would expect the yen to recuperate the losses it sustained.”
Dollar Index Falls
The Dollar Index was little changed for the week at 76.911 after better-than-forecast U.S. economic data help spur stocks and commodities to five-day gains. The number of Americans filing applications for unemployment benefits last week fell to the lowest level in seven months, Labor Department data showed, and consumer confidence rose more than projected this month, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment.
The S&P 500 Index (SPX) 0.9 percent and the S&P GSCI Index of 24 raw materials jumped 1.9 percent.
The Canadian dollar climbed versus all of its most-traded counterparts except the yen. It gained 0.8 percent to C$1.0104 to the greenback.
South Africa’s rand dropped after Moody’s Investors Service lowered its outlook for the nation’s sovereign debt Nov. 10. The loss eased as investor risk appetite improved, and the currency ended the week down 0.4 percent to 7.9365 per dollar.(Bloomberg)
Euro-region governments may guarantee Greek bonds to make it easier for the European Central Bank to accept a default of the indebted nation after months of opposition to such a move, said two officials familiar with the talks.
Policy makers would aim to keep any period of default as short as possible, said an EU government official, who spoke on condition of anonymity because deliberations before today’s Brussels summit were confidential. The bonds could be backed up by top-rated securities sold by the European Financial Stability Facility, a national central bank official said. No decisions have been taken and an ECB spokesman declined to comment.
The proposal signals that leaders may find a way for the ECB to accept a default and sign up to a new package for Greece, which is a key step in stopping Europe’s debt crisis spreading to Italy and Spain. ECB President Jean-Claude Trichet, who is at the summit, has said until now that the ECB can’t accept defaulted Greek bonds as collateral in market operations, a step which would cut off funds to Greek banks.
“This could be the fix to the problem the ECB was facing,” said Laurent Bilke, head of inflation strategy at Nomura International in London, who used to work at the ECB. “If these guarantees are very short-term, maybe just for a few days, just to tide them over a short selective default, then taxpayers’ exposure will be limited.”
ECB Room
Dutch Finance Minister Jan Kees de Jager told his country’s parliament today that he sees “more room” for the ECB to accept a selective default. Luxembourg Prime Minister Jean- Claude Juncker told reporters before the summit that a Greek default can’t be excluded.The risk was that a refusal by the ECB to fund Greek banks would have a sparked a collapse of the country’s financial system. The ECB is the main source of their funding and also holds the bulk of the country’s sovereign debt.
As part of its recession-fighting armory, the ECB lends banks as much money as they need for up to three months against collateral determined at the central bank’s discretion.
While the ECB last year suspended the minimum credit rating threshold for Greek banks, ECB Governing Council member Jens Weidmann from Germany told Die Zeit newspaper in an interview published July 13 that it’s “not our job to finance insolvent banks, never mind countries.”
Debt Burden
“The euro system only lends money against adequate collateral,” he was quoted as saying.German government officials have signaled that a restructuring of Greek debt may be inevitable as governments try to carve out a second bailout package for the debt-laden country.
Leaders may turn to the EFSF fund to finance the Greek bond agreement. The 440 billion-euro ($624 billion) EFSF fund, overseen by euro nation governments, was set up last year to raise emergency fund for debt-strapped nations. In June, it put on sale 5 billion euros of 10-year notes at a yield of 3.49 percent.
So far, the fund has not been used for Greece even though it has co-financed the Irish and Portuguese rescue packages.(Bloomberg)
The euro advanced against the dollar, erasing its drop, on speculation the European Financial Stability Facility may guarantee Greek bonds to make it easier for the European Central Bank to accept a default on the debt.
The Swiss franc fell against all of its major counterparts as the prospects for an agreement at today’s summit in Brussels reduced demand for a refuge.
“The two things everybody’s looking for is either an expansion of the size of the EFSF or some clear statement about the EFSF being allowed to buy bonds in the secondary market,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “That will be the decisive measure that could be used to Spain and Italy.”
The euro gained 0.3 percent to $1.4257 at 8:29 a.m. in New York, from $1.4215 yesterday, after earlier dropping 0.5 percent. The shared currency advanced 0.3 percent to 112.32 yen, from 111.99. The dollar was little changed at 78.79 yen.
Policy makers would aim to keep any period of Greek default as short as possible, said a European Union government official, who spoke on condition of anonymity because deliberations before today’s Brussels summit were confidential.
The bonds could be backed up by top-rated securities sold by the European Financial Stability Facility, a national central bank official said. No decisions have been taken, and an ECB spokesman declined to comment.(Bloomberg)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/sp_en_6.gif)
