Euro headed for weekly advance on optimism for ECB crisis plan

Aug. 17 (Bloomberg) -- The euro headed for a weekly gain against all of its most-traded counterparts amid optimism that European leaders are moving closer to agreement on solving the region’s debt crisis.

The shared currency touched a six-week high versus the yen after German Chancellor Angela Merkel yesterday backed European Central Bank Chief Mario Draghi’s conditions for helping reduce borrowing costs in indebted countries. It erased a gain against the dollar as German bonds grew the most expensive in two months versus equivalent U.S. debt. Australia’s dollar snapped a two- day gain versus the greenback as the government said the central bank can ease monetary policy if gains hurt the economy.

The euro has been buoyed by suggestions that the ECB “will buy bonds as soon as anyone comes to the European Financial Stability Fund to ask for help,” Kit Juckes, the head of foreign-exchange research at Societe General SA, said today in a telephone interview. “At some point, maybe we’ll get bored again of nobody asking for help, but that’s definitely a factor which I think has helped the general mood.”

The euro declined 0.1 percent to 97.96 yen at 1:41 p.m. New York time, after climbing to 98.41, the most since July 6. It fell 0.3 percent to $1.2319. Japan’s currency dropped for a fifth day against the dollar, retreating 0.2 percent to 79.52.

Canada’s dollar weakened against its U.S counterpart for the first time in four days as inflation slowed in July, adding to evidence the nation’s economy is moving away from full capacity. It fell 0.3 percent to 98.93 cents per U.S. dollar.

Colombia’s peso dropped for an eighth day, its longest streak since August 2008, on speculation officials will take more measures to stem its rally. The peso depreciated 0.2 percent to 1,822.75 per U.S. dollar, paring its rally this year to 6.4 percent, the largest among global counterparts after the Hungarian forint and the Chilean peso.

Euro, Yen

The euro has gained 1.8 percent versus the yen this week, the most since the period through June 8. It’s up 0.2 percent against the dollar since Aug. 10. The yen is down 1.6 percent versus the greenback, its biggest weekly drop since the five days ended June 22.

“Euro-yen has historically been a good barometer for risk appetite,” Blake Jespersen, managing director of foreign exchange in Toronto at Bank of Montreal, said in a telephone interview. “Improved market sentiment is benefiting that cross in particular. That pair has really been a proxy for overall risk sentiment, and as a result, you’re seeing a good run up.”

Draghi said on Aug. 2 that the ECB might buy government bonds to help lower borrowing costs in countries such as Spain and Italy, though only in return for strict conditions and if governments act first by buying debt through Europe’s bailout funds. Spain and Italy have yet to say whether they will request aid.

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