The euro advanced, extending last week’s gains versus the dollar and yen, as Italy’s Cabinet approved a plan to cut its deficit before a European summit on the region’s sovereign-debt crisis.
The 17-nation currency appreciated against all but two of its 16 major counterparts after people familiar with the negotiations said a proposal to channel European Central Bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($268.7 billion) to fight the crisis. The yen and dollar weakened as stocks gained, damping demand for safer investments.
“The ECB is prepared to do more as long as politicians get their fiscal house in order, so everything points in the direction of something big coming out of this week’s meeting,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “In the early part of this week we will continue to see risk appetite improve, which should boost the euro.”
The euro rose 0.4 percent to $1.3446 at 8:01 a.m. in London after gaining 1.2 percent last week. The 17-nation currency climbed 0.4 percent to 104.89 yen. It appreciated 1.5 percent last week. The dollar was little changed at 77.98 yen.
German Chancellor Angela Merkel is scheduled to meet French President Nicolas Sarkozy to work on a plan for stricter enforcement of the region’s deficit rules. European Union leaders will hold a summit in Brussels this week.
Monti Plan
Italian Prime Minister Mario Monti announced 30 billion euros of austerity and growth measures yesterday. The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement, to both houses of parliament today.
At a Nov. 29 meeting attended by ECB President Mario Draghi, euro-area finance ministers gave their approval for work on a plan to recycle national central bank funds through the IMF, said the two people who declined to be named because the talks are at an early stage. The funds may be used to underwrite precautionary lending programs for Italy or Spain, the two countries now judged to be the most vulnerable, the people said.
The Stoxx Europe 600 Index advanced 0.8 percent and futures on the Standard & Poor’s 500 Index gained 1 percent.
The ECB will cut its benchmark interest rate to 1 percent from 1.25 percent when it meets Dec. 8, according to the median estimate of economists surveyed by Bloomberg News.
‘Spark a Rally’
A rate cut “would likely spark a rally in the euro first as investors ‘reward’ the central bank for taking a proactive stance,” Mansoor Mohi-uddin, Singapore-based head of foreign exchange strategy at UBS AG, wrote in a note to clients.
The euro will then decline as investors weigh further ECB action as the euro-area economy deteriorates, he wrote. UBS forecasts the currency will drop toward $1.20 next year.
A second estimate of the euro-zone’s gross domestic product will show the economy grew 0.2 percent in the third quarter, according to a separate Bloomberg survey before tomorrow’s report. That’s the same growth rate as the prior three months.
Growth in German factory orders slowed to 1.9 percent in October from a year earlier, from 2.4 percent in the previous month, a separate Bloomberg survey showed before the data is released tomorrow.
“There’s a material chance of a recession in Europe,” said Michael Turner, a fixed-income and currency strategist at Royal Bank of Canada in Sydney. “In light of looser monetary policy, a pretty weak growth outlook next year and some particularly tight fiscal policy, the decline in euro has been pretty consistent.”
Euro Shorts
Futures traders increased bets the euro will decline against the dollar, figures from the Commodity Futures Trading Commission showed. The difference in the number of wagers on a decline in the euro compared with those on a gain -- so-called net shorts -- was 104,302 on Nov. 29, compared with net shorts of 85,068 a week earlier.
The euro is “a much less attractive reserve story,” RBC’s Turner said. “It’s hard to see the demand for dollars dropping off over the next year.”
The dollar held gains from last week versus the yen before a report forecast to show U.S. service industries expanded.
The U.S. Institute for Supply Management’s non- manufacturing index rose to 53.8 last month from 52.9 in October, according to a Bloomberg survey before the group’s report today.
The ringgit fell for the first time in three days before a Dec. 8 report that economists said will show industrial production climbed 1.5 percent in October from a year earlier, after a 2.5 percent gain in September.
The ringgit fell 0.5 percent to 3.1360 per dollar. The currency rose to 3.1155 on Dec. 2, the strongest since Nov. 9.
(source: Bloomberg)
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05/12/2011 04:14:38 PM | 