Wednesday, 7 December 2011

Euro Rises on Optimism Debt Summit to Stem Crisis; Aussie Gains

By Candice Zachariahs and Monami Yui

Dec. 7 (Bloomberg) -- The euro rose against the majority of its 16 main counterparts amid speculation Europe will expand funds available to the region’s most-indebted nations as leaders prepare to meet in Brussels tomorrow.

The 17-nation euro snapped a three-day decline versus the yen after the Financial Times reported yesterday that Europe may combine temporary and planned permanent rescue facilities to bolster its bailout resources. The European Central Bank is forecast to cut interest rates tomorrow. Australia’s dollar rose against most major peers after a report showed the nation’s economy grew faster than estimated last quarter.

“Ahead of the summit, we are seeing a certain expectation in the overall market that European policy makers will take a step forward to resolve the debt crisis,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank. “That’s giving some support to the euro.”

The euro rose 0.3 percent to $1.3445 at 7 a.m. London time. The common currency gained 0.3 percent to 104.49, after falling 0.1 percent yesterday. The dollar was unchanged at 77.73 yen.

U.S. Treasury Secretary Timothy F. Geithner yesterday backed a German-French push for closer European cooperation, urging policy makers to work with central banks to erect a “stronger firewall” to end the crisis. He welcomed “progress toward a fiscal compact for the euro zone,” echoing language used last week by ECB President Mario Draghi.

Rescue Funds

Operating the European Stability Mechanism in combination with the 440 billion-euro ($590 billion) temporary fund next year would potentially boost Europe’s anti-crisis resources to 940 billion euros. There were negotiations over pairing the two, according to two people familiar with the discussions, Bloomberg News reported on Oct. 20.

The ECB will reduce its benchmark rate to 1 percent from 1.25 percent on Dec. 8, according to the median estimate of 58 economists surveyed by Bloomberg News.

ECB Governing Council member Ewald Nowotny said this week that the central bank is observing liquidity shortages in the banking sector and can do more to supply funds.

The euro will rise to $1.37 by September 2012, according to a Bloomberg survey of analysts. It has fallen 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking the currencies of 10 developed markets. The yen has advanced 2.3 percent, the best performer, and the dollar has gained 1.8 percent over that period, the data show.

Dollar Refuge

Losses in the dollar were limited on speculation the euro area will need time to defuse its crisis and Japan will face the risk of a credit-rating downgrade, increasing demand for the greenback as a refuge.

Standard & Poor’s is “closer to a downgrade” of Japan’s AA- rating, Takahira Ogawa, director of sovereign ratings at S&P in Singapore, said last month. Japan-based Rating & Investment Information Inc., which has rated the nation at AAA since 2000, said last week it may cut the ranking by year-end.

“The dollar would be your pick among G-3 currencies now, you can’t aggressively buy the euro because of the debt crisis or the yen because of a possible downgrade of Japan’s sovereign rating,” said Morio Okayasu, chief analyst in Tokyo at Japan Co., a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “Concern over a slowdown in the U.S. economy has receded.”

The so-called Aussie dollar advanced as signs of resilience in the U.S. and Australian economies supported demand for higher-yielding assets.

U.S. Data

The number of Americans claiming unemployment benefits for the first time probably fell to 395,000 last week from 402,000, according to the median prediction of economists surveyed by Bloomberg before the report tomorrow.

U.S. consumer sentiment will likely pick up this month, according to another Bloomberg survey before the preliminary Thomson Reuters/University of Michigan survey due on Dec. 9. Confidence rose to 65.8 from 64.1 at the end of November, the data are forecast to show.

“The brighter outlook for the U.S. economy is also encouraging money flow into high-yield currencies like the Aussie,”’s Okayasu said.

Australia’s statistics bureau said today third-quarter gross domestic product increased 1 percent from the previous three months, when it rose a revised 1.4 percent. That compared with the median analyst estimate for a 0.8 percent gain.

RBA Rate Outlook

“The GDP data was strong and that is bullish for the Aussie,” said Thomas Harr, head of Asian currency strategy Standard Chartered Plc in Singapore. The market may “take back some of the rate-cut expectations.”

The Reserve Bank of Australia yesterday lowered the nation’s key interest rate to 4.25 percent from 4.5 percent in its first cut at back-to-back meetings since 2009. Swaps traders are betting on at least a percentage point of reductions within 12 months, according to a Credit Suisse AG index.

The Aussie advanced 0.3 percent to 79.89 yen and $1.0280.

Indonesia’s rupiah weakened on speculation the central bank hasn’t yet stepped in the foreign-exchange market to strengthen the currency. Bank Indonesia plans to boost “intervention” in the market to support the currency, Governor Darmin Nasution said Nov. 30, a day after the rupiah reached a 17-month low.

The rupiah declined 0.3 percent to 9,080 per dollar, according to prices from local banks compiled by Bloomberg.

--With assistance from Mariko Ishikawa in Tokyo and Khalid Qayum in Singapore. Editors: Naoto Hosoda, Jonathan Annells

To contact the reporters on this story: Candice Zachariahs in Sydney at; Monami Yui in Tokyo at

To contact the editor responsible for this story: Rocky Swift at