Aug. 6 (Bloomberg) -- The dollar fell against most of its major counterparts as risk appetite increased amid speculation central banks may take further steps to boost economic growth.
The euro pared losses against the yen as German Chancellor Angel Merkel’s government backed the European Central Bank’s bond-buying plan. Stocks rose, with the Standard & Poor 500 Index reaching its highest level since May. Norway’s krone climbed. Sterling declined against all of its 16 most-traded peers after U.K. data showed weakness in the housing market.
“We’ve seen a temporary subsiding in the risk-off trading environment,” Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp, said in a telephone interview. “The market is already very short euros and overly long dollars, so going back to a more neutral basis is consistent with what we’ve seen.” A short position is a bet a security will decline, and a long position a wager it will rise.
The U.S. currency dropped 0.4 percent to 78.17 yen at 1:53 p.m. New York time. The greenback declined 0.1 percent to $1.2398 per euro, after dropping earlier as much as 0.5 percent to $1.2444, the weakest in a month, and rising 0.4 percent. The shared currency sank 0.3 percent to 96.91 yen after touching 97.80 earlier, the strongest level since July 12.
The euro lost 1.1 percent in the past month versus nine developed-nation counterparts tracked by the Bloomberg Correlation-Weighted Indexes. The dollar was the worst performer, falling 2.1 percent, while Sweden’s krona rose the most, 2.8 percent.
Krone Climbs
The Norwegian krone gained 0.3 percent to 5.9631 per dollar and appreciated 0.1 percent to 7.3958 per euro, and Australia’s dollar rose versus its U.S. counterpart after falling earlier. The Aussie gained 0.1 percent to $1.0580.
The pound fell to a one-month low against the euro after U.K. reports showing weakness in the housing market underlined the fragility of Britain’s economy. The currency dropped 0.3 percent to 79.43 pence per euro after depreciating to 79.63 pence, the weakest level since July 6. Sterling declined 0.2 percent to $1.5613.
The Swedish krona dropped against the euro and dollar after Statistics Sweden said service production fell 0.2 percent from May, when it gained 2.3 percent. Production rose an annual 1.1 percent, compared with May’s 1.9 percent jump.
The krona declined 0.3 percent at 8.3310 against the euro and declined 0.2 percent to 6.7179 per dollar.
Merkel’s government today backed ECB President Mario Draghi’s proposals on bond buying to help bring down borrowing costs in Spain and Italy.
The government is “not worried” by Draghi’s announcement of Aug. 2, deputy Merkel spokesman Georg Streiter told reporters at a regular press briefing in Berlin today, when asked whether the government is concerned that ECB independence might be compromised.
U.S. and European stocks rose. The S&P 500 Index increased as much as 0.6 percent, and the MSCI World Index of stocks gained as much as 0.9 percent to its highest point since May 4.
“What they need to do is address the short-term debt issues and the deposit-insurance schemes,” Peter Gorra, chief dealer for BNP Paribas SA in New York, said in a television interview on Bloomberg’s “Lunch Money” with Sara Eisen and Stephanie Ruhle. “They’re going to solve it, and it’s going to be sooner than people think.”
Fed Speculation
The dollar dropped on Aug. 3 and stocks in the U.S. climbed amid speculation a payrolls gain of 163,000 jobs in July wasn’t big enough to keep the Federal Reserve from taking further steps to spur the economy. Fed policy makers said Aug. 1 after a meeting that they “will provide additional accommodation as needed,” while they refrained from expanding monetary easing this month.
The euro fell earlier versus the yen and dollar after Italy’s Prime Minister Mario Monti said divisions within the 17- nation currency bloc are threatening the European Union’s future.
Draghi outlined a plan last week under which the ECB may buy debt in tandem with the euro area’s bailout fund, while saying the details still need to be worked out over the coming weeks. Bundesbank President Jens Weidmann said in an interview published a day before Draghi’s comments that the ECB shouldn’t exceed its mandate.
Draghi’s plan is intended to lower yields on sovereign bonds for recession-stricken countries such as Spain, whose 10- year notes climbed to a euro-era high of 7.75 percent on July 25, the day before the ECB chief pledged to preserve the euro. The securities yielded 6.74 percent today.
Spanish Bonds
Any bond purchases undertaken by the ECB in unison with the European Financial Stability Facility would focus on shorter- term securities, Draghi said on Aug. 2. The additional yield investors demand to hold Spanish 10-year bonds over two-year debt touched 3.43 percentage points today, the most since Bloomberg began collecting the data in 1993.
“There are probably considerations to see whether Spain requests official EFSF assistance,” Geoffrey Yu, a London-based currency analyst at UBS AG, said in a radio interview on “Bloomberg - The First Word” with Ken Prewitt. “If that happens, the market would probably welcome it, and it would be another step toward a structural solution for the euro zone.”
Greece and its international creditors agreed on the need to strengthen policy efforts to support the nation’s economy and comply with its bailout terms after nearly two weeks of meetings in Athens.
“Many people in markets are resigned to the fact that Greece may need more assistance,” UBS’s Yu said. “There’s very little appetite across the euro zone, especially in the core, to provide Greece with any more money.”
An index measuring sentiment in euro bloc slid to minus 30.3, from minus 29.6 in July, Limburg, Germany-based Sentix said in a statement today.
