The euro climbed for a second day against the dollar and the yen amid speculation Spain is moving closer to requesting a sovereign bailout and unlocking European Central Bank debt purchases.
The 17-nation currency advanced with Spanish bonds, rebounding from yesterday’s one-week low versus the dollar, which was reached after Standard & Poor’s downgraded Spain Oct. 10. Japan’s currency slid before data forecast to show U.S. consumer confidence was near the strongest since May. Singapore’s dollar appreciated after its monetary authority kept policy unchanged. Euro-area industrial output climbed for a second month in August, data showed.
Foreign-exchange traders are “pricing in the additional relief rally that’s going to happen when Spain does request an aid program,” Stephen Gallo, foreign-exchange strategist at Credit Agricole SA in London, said in a telephone interview. “Any bids you see in the price of euro-dollar are reflective of that dynamic.”
The euro strengthened 0.4 percent to $1.2985 at 9:44 a.m. New York time after falling to $1.2826 yesterday, the weakest level since Oct. 1. It climbed 0.4 percent to 101.64 yen after briefly rising through its 200-day moving average, 101.81, for the first time in three days. The yen was little changed at 78.36 per dollar.
Spain’s 10-year bond yield fell 14 basis points, or 0.14 percentage point, to 5.62 percent. They dropped from the euro- era record of 7.75 percent reached in July to as low as 5.55 percent after ECB President Mario Draghi said the central bank is ready to do “whatever it takes” to preserve the euro.
The shared currency will strengthen to $1.35 in the next three to six months, with the dollar weakened by the Federal Reserve’s third round of asset purchases under quantitative easing, which may debase the currency, according to Danske Bank A/S. The U.S. central bank said last month it will buy $40 billion of mortgage debt a month until the economic recovery is well-established.
“We expect the unwinding of short euro positions to continue, and we also expect the Fed’s open-ended easing program to support euro-dollar going forward,” Morten Helt, a senior analyst based in Copenhagen, wrote in a report. “We still like to buy euro-dollar on dips.” A short position is a bet that a currency or security will fall.
While the ECB unveiled an unlimited debt-purchase program on Sept. 6 to curb the region’s debt crisis, Spanish Prime Minister Mariano Rajoy has held off on a decision about whether to request aid, a condition the bank insists on. European Union leaders will hold a two-day summit in Brussels next week.
“There is some buying of the euro as investors speculated the S&P downgrade may hasten Spain’s request for a bailout,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “The markets will be watching if any progress is made at the EU summit on both the Spanish and Greek situations.”
The euro gained against most of its 16 major peers as the EU’s statistics office in Luxembourg said industrial output in the currency bloc unexpectedly increased 0.6 percent in August from July, when it also gained 0.6 percent.
The Thomson Reuters/University of Michigan sentiment index was at 78 in October, according to the median forecast of 71 analysts in a Bloomberg News survey. That would be little changed from September’s final reading of 78.3.
Japanese Finance Minister Koriki Jojima said yesterday he told his Group of Seven counterparts the strength of the yen is hurting the nation’s economy and that countries should cooperate on foreign exchange if necessary. A stronger yen makes Japanese products pricier overseas and erodes domestic exporters’ earnings when repatriated.
The yen touched 77.95 per dollar yesterday, the strongest level since Oct. 1. The Japanese currency has appreciated 3.6 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro fell 1.7 percent and the dollar was little changed.
Singapore’s dollar climbed against most major counterparts. The city-state’s central bank unexpectedly announced today that it would leave monetary policy unchanged, as inflation risks trump worries over a shrinking economy.
“This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring toward sustainable growth,” the Monetary Authority of Singapore said today in a statement following its semi-annual exchange-rate review.
There will be no change to the slope and width of the local currency’s trading band that the MAS uses as its main policy tool, the bank said. The level at which it is centered will also remain unchanged, the MAS said.
The Singapore dollar strengthened 0.5 percent to S$1.2213 versus its U.S. counterpart. It has advanced 6.2 percent this year, the best performance after the Mexican peso among the greenback’s major peers.