The euro gained for the first time in three days against the dollar on speculation rising fuel costs will put further pressure on European Central Bank policy makers to combat inflation with higher interest rates.
The single currency climbed to a two week-high versus its U.S. counterpart also gained versus the yen and Swiss franc. The Dollar Index snapped two days of advances before a report economists said will show sales of previously owned homes in the U.S. dropped. Oil prices approached a two-year high amid intensifying violence in Libya. The pound strengthened versus the dollar and euro as minutes of the Bank of England’s Feb. 10 meeting showed three out of nine policy makers voted for an increase in rates.
“The market is focusing more on prospects for higher interest rates and this speculation should offer further relief for the European unit,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “The Federal Reserve’s position is very clear; the U.S. outlook is still uncertain and they don’t want to raise rates too soon.”
The euro rose 0.6 percent to $1.3737 as of 7:37 a.m. in New York, after appreciating to $1.3744, the strongest since Feb. 9. The single European currency advanced 0.7 percent to 113.74 yen. The dollar was at 82.78 yen, from 82.77 yen yesterday, when it reached 82.53, its weakest since Feb. 10.
ECB officials will “inevitably” have to “rebalance our monetary policy stance,” with the 17-nation euro-area economy strengthening and inflation in breach of the central bank’s 2 percent limit, council member Yves Mersch said yesterday, without giving a time frame. Policy makers will take the decisions necessary to maintain price stability, ECB President Jean-Claude Trichet said in Frankfurt today.
‘Turn Hawkish’
“As policy makers turn hawkish, I get a sense they are getting ready to change their policy stance next week,” said Naoto Minatogawa, a currency analyst at Himawari Securities Inc. in Tokyo. “The euro has been supported.”
Futures show traders added to bets for higher borrowing costs. The implied yield on the three-month Euribor futures contract for December rose to 1.97 percent today from 1.99 percent yesterday and 1.88 percent on Feb. 16. Futures on the CME Group Inc. exchange show a 27 percent chance Fed policy makers will boost their main rate to 0.5 percent in December, down from 32 percent a week ago.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.4 percent to 77.431.
House Purchases
U.S. house purchases decreased 1.1 percent from December to a 5.22 million annual rate, according to the median forecast of 73 economists surveyed by Bloomberg News. A 13-year-low 4.91 million existing houses sold in 2010. The National Association of Realtors’ data is due at 10 a.m. in Washington, with economists’ estimates ranging from 4.86 million to 5.5 million after December’s 5.28 million pace.
German Chancellor Angela Merkel signaled yesterday that European Union leaders may be ready to renegotiate the terms of Greece’s bailout as part of a broader package to shore up confidence in the euro.
“There certainly is a discussion about whether to consider extending the running time of the Greek program,” Merkel said, noting that last year’s aid plan for Greece was limited to three years while Ireland’s bailout package, agreed last November, runs for seven years. “It’s one point that’s on the table.’
‘Civil War’
Continued protests “will lead to civil war,” Libyan leader Muammar Qaddafi said yesterday in Tripoli. The nation holds Africa’s largest crude reserves. Qaddafi’s crackdown on a week-long uprising has already left more than 200 dead, according to Human Rights Watch.
Crude for April delivery rose as much as 0.9 percent in electronic trading on the New York Mercantile Exchange, after climbing yesterday to the highest since October 2008.
Sterling gained 0.7 percent to $1.6246 and was little changed at 84.53 pence per euro, from 84.59 pence yesterday.
Spencer Dale joined Andrew Sentance and Martin Weale in voting for higher rates as a growing number of officials said the case for tightening policy had “grown in strength,” minutes released in London today showed.
The pound may strengthen to $1.65 during the next few weeks as speculation mounts that the Bank of England will raise its main rate from a record low 0.5 percent, before weakening on concern that higher borrowing costs will crimp economic growth, according to Hans-Guenter Redeker, head of global currency strategy at BNP Paribas SA in London.
Higher Rates
“We will have to think about the sustainability of higher interest rates in an environment where the economy is highly leveraged,” Redeker said in an interview. “Credit is still weak.” Sterling support “may last several weeks,” he said.
The New Zealand dollar, known as the kiwi, strengthened after Moody’s Investors Service said it sees no immediate impact from the Christchurch earthquake on the nation’s Aaa credit rating.
“We’ve seen the kiwi bounce as the market was a little bit carried away in pricing an immediate rate cut,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. “There are record high commodity prices in New Zealand at the moment and the Reserve Bank puts a lot of weight on commodity prices and the terms of trade boom, so it’s unlikely that we’ll see a cut.”
The earthquake killed at least 75 people and the disaster is likely to cost reinsurers around NZ$5 billion ($3.7 billion), Prime Minister John Key said.
The kiwi was little changed at 74.63 U.S. cents after strengthening to 75.13 U.S. cents. It declined yesterday to its weakest level against the U.S. currency since December. The New Zealand dollar was also little changed at 61.79 yen.
Source: Bloomberg By
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