Euro Within 1 Cent of Three-Week High Before Slovakia Vote; Pound Weakens

By Emma Charlton and Candice Zachariahs - Oct 11, 2011 2:28 PM GMT+0700

The euro traded within 1 U.S. cent of a three-week high against the dollar as Asian stocks rallied and Slovakian lawmakers prepared to vote on Europe’s retooled emergency bailout fund.

The 17-nation currency held gains from yesterday versus the yen, which came after Germany and France pledged to deliver a plan to support banks. The dollar traded near a one-week low versus the Swiss franc before the Federal Reserve releases minutes of its September meeting tomorrow. The pound weakened before a report forecast to show U.K. industrial production contracted for a second month in August.

“We’ve had a run up in the euro and a run down in the dollar,” said Gavin Friend, a markets strategist at National Australia Bank Ltd. in London. “We’ll have a pause for the Slovakian vote today. There could be a sell-off of the euro if we get a ‘no’ vote there. It has moved up a lot in a week.”

The euro traded at $1.3649 at 8:17 a.m. London time from $1.3642 yesterday when it rose to $1.3699, the strongest level since Sept. 21. The shared currency was at 104.68 yen from 104.59. The dollar bought 76.69 yen from 76.68 yen, and traded at 90.48 Swiss centimes from 90.37, after declining to 90.03 yesterday, the weakest since Sept. 30.

The MSCI Asia Pacific index of shares advanced 1.8 percent. The Stoxx Europe 600 Index declined 0.3 percent.

Slovakia Vote

Slovakia is the only country in the 17-nation euro region that hasn’t ratified the financial rescue measure, known as the European Financial Stability Facility, following approval in Malta’s parliament yesterday. Slovakian lawmakers aren’t expected to approve the measures at the first vote today, National Australia Bank’s Friend said.

The nation’s ruling party will pressure rebel lawmakers to approve the bailout fund by threatening to tie a parliamentary vote today on the facility with a no-confidence motion, two government officials said.

“The euro is still a major point of concern for global markets,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “We’ll still have to deal with a number of issues which are yet to be resolved. It’s hard to imagine that over the next month that all these will be resolved adequately.”

Germany and France on Oct. 9 set an end-of-month deadline for a breakthrough in handling Europe’s sovereign debt crisis. German Chancellor Angela Merkel and French President Nicolas Sarkozy put recapitalization of the region’s banks at the top of the priority list in a joint declaration in Berlin. Sarkozy said they would deliver a plan by the Group of 20 meeting on Nov. 3.

The idea of a support plan for banks pushed the euro up by the most in more than a year against the dollar yesterday.

Fed Minutes

Demand for the greenback was tempered before minutes of the Federal Reserve’s September meeting are released tomorrow.

The central bank said last month it will buy $400 billion of bonds with maturities of six to 30 years through June while selling an equal amount of debt maturing in three years or less under a program that has been dubbed Operation Twist.

The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Chairman Ben S. Bernanke said Oct. 4 in testimony to Congress’s Joint Economic Committee.

“The general attitude from the policy makers of the Fed is definitely not supportive for the U.S. dollar,” Royal Bank of Scotland’s Gibbs said.

The dollar has lost 1 percent this year, the third-worst performer alongside the pound among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

Pound Falls

The pound snapped a two-day gain versus the dollar before a report that economists said will add to signs the U.K. recovery is struggling to regain momentum.

Industrial production fell 0.2 percent for a second month in August, the Office for National Statistics will say today according to a Bloomberg News survey.

“It appears that the pound is catching onto the coat-tails of a firmer euro rather than benefiting from a domestically led improvement in sentiment,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB, wrote in a report today. “U.K. data releases today including manufacturing and industrial production may take some of the shine off” the currency.

The pound fell 0.2 percent to $1.5645, and dropped 0.2 percent to 87.20 pence per euro.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net