The euro advanced from a three-week low against the dollar amid optimism that Spain’s latest budget and banking measures are moving the euro region closer to containing its debt crisis.
The 17-member currency strengthened versus all of its 16 most-traded peers after Moody’s Investors Service said Spain’s bank recapitalization is positive for the nation’s credit rating. Results of stress tests as part of terms to win a European bailout showed Sept. 28 Spanish banks have a capital deficit less than previously estimated. The pound weakened as an index of U.K. manufacturing fell more than forecast.
“We had some developments last week with the budget and stress tests that, overall, they were OK,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “It seems like they are making steps toward getting to a more sustainable budget deficit. Obviously it’s going to be a long process.”
The euro appreciated 0.4 percent to $1.2916 at 9:27 a.m. New York time, after dropping as much as 0.4 percent to $1.2804, the weakest since Sept. 11. It strengthened 0.5 percent to 100.69 yen, also erasing a 0.4 percent decline. Japan’s currency was little changed at 77.94 against the greenback.
The euro rose even after reports showed manufacturing in the region contracted for a 14th month in September and the unemployment rate reached the highest on record.
“Much of the negative news has been discounted, and we’re in a position whereby the market is still very hopeful that we’re moving in Europe toward some more positive news with regards to Spain,” said Ian Stannard, head of European foreign- exchange strategy at Morgan Stanley in London. “The euro is going to be very well supported in this environment.”
A gauge of manufacturing based on a survey of purchasing managers was 46.1, above an initial estimate of 46 on Sept. 20, Markit said today. The index has held for 14 months below 50, indicating contraction, and fell as low as 44 in July. Unemployment was 11.4 percent in August, the same as in June and July after those months’ figures were revised higher, according to the European Union’s statistics office.
Spain’s 10-year bonds rose for a third day, with the yield decreasing six basis points, or 0.06 percentage point, to 5.88 percent.
Spain commissioned the stress tests as part of terms to win external financial aid of as much as 100 billion euros ($129 billion) for its banking system. They showed a deficit of 59.3 billion euros.
The euro lost 3.5 percent over the past six months, the biggest drop after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar was little changed, and the yen jumped 7 percent.
The pound depreciated against 13 of its 16 most-traded counterparts as a gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 48.4 last month from a revised 49.6 in August. The median forecast of 29 economists in a Bloomberg News survey called for a reading of 49.
Sterling fell 0.5 percent to 80 pence per euro, the least in a week. It was little changed at $1.6156 after touching $1.6109 earlier, the weakest since Sept. 13.
Sweden’s krona is the best performer in a basket of developed-market peers since June, with a 3 percent advance, almost twice that of the second-place Norwegian krone.
Strategists raised their estimates for the currency against the dollar by about 8 percent in less than three months as the central bank last month signaled that it sees no need to curb the krona’s advance. That’s in contrast to the dollar, which fell last quarter as Fed Chairman Ben S. Bernanke’s open-ended stimulus plan debased the currency, and the euro, which weakened amid a third year of debt turmoil.
Sweden’s krona was little changed today at 6.5607 per dollar, after advancing 5.2 percent against the U.S. currency in the third quarter. It slipped 0.4 percent to 8.4755 per euro.
“The krona can go a lot further,” John Taylor, the founder and chief executive officer of New York-based hedge fund FX Concepts LLC, which manages $3 billion, said in a Sept. 27 interview. “Sweden has the wind behind it because Bernanke is making the dollar go down and Europe keeps having these traumas.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, slid 0.4 percent to 79.632 after climbing earlier to 80.147, the highest since Sept. 11.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the U.S. Dollar Index compared with those on a gain -- so-called net shorts -- was 3,970 on Sept. 25 compared with a net long position of 4,896 a week earlier, according to figures from the Washington-based Commodity Futures Trading Commission.
Australia’s dollar touched the lowest level in more than a year against its New Zealand counterpart before the larger nation’s Reserve Bank holds a policy meeting tomorrow.
Interest-rate swaps data compiled by Bloomberg show traders see an 87 percent chance that RBA policy makers will lower the overnight cash-rate target by 25 basis points from 3.5 percent. That contrasts with the median forecast of economists in a Bloomberg survey that predicts officials will keep the benchmark unchanged for a fourth-straight meeting.
“The bottom line is that a dovish bias will most likely emerge from the RBA, if not in the form of an actual interest rate cut, most probably through a dovish statement,” Audrey Childe-Freeman, head foreign-exchange strategist at Bank of Montreal in London. “All this points at potential near-term downside risk for the Australian dollar.”
The so-called Aussie dollar touched NZ$1.2469, the lowest since September 2011, before trading 0.1 percent lower at NZ$1.2490.