Euro Pares Advance as Italian Budget Vote Fails to Quell European Turmoil

By Allison Bennett - Nov 9, 2011 5:16 AM GMT+0700

The euro rose versus the dollar for the first time in three days after Italian Prime Minister Silvio Berlusconi offered to quit once Parliament approves austerity plans, boosting optimism the nation will get a new leader who can tame the debt crisis.

The 17-nation currency earlier traded little changed after Berlusconi won a vote in parliament without an absolute majority, fueling calls for him to resign. The yen gained to its strongest against the dollar since Japan intervened Oct. 31 to stem its rise. South Africa’s rand rose versus all of its 16 most-traded peers as gold futures topped $1,800 an ounce for the first time in seven weeks. Stocks climbed.

“We already know that we could have a technocrat government in Italy, and that’s better than Berlusconi,” said Greg Anderson, a senior currency strategist in New York at Citigroup Inc. “There is still a lot of pain coming down the pike, and the high $1.30’s is where you want to sell the euro for it to be below $1.30 within the month.”

The euro appreciated 0.4 percent to $1.3834 at 5 p.m. New York time, after falling earlier to as low as $1.3725. It was little changed at 107.52 yen after paring losses of as much as 0.4 percent. The Japanese currency rose 0.4 percent to 77.73 per dollar and touched 77.60, the strongest since Oct. 31. The yen reached a post-World War II high of 75.35 to the greenback that day, and the Bank of Japan sold the currency to weaken it.

The franc rose versus the euro as Swiss National Bank Vice President Thomas Jordan said the SNB is not weakening it to gain export advantage.

The Standard & Poor’s 500 Index climbed 1.2 percent.

Austerity Measures

Italian President Giorgio Napolitano said in an e-mailed statement after talks with the prime minister that he’d received Berlusconi’s offer to resign once Parliament passes austerity measures in a vote next week.

The measures stem from a 45.5 billion-euro ($63 billion) austerity package initially passed by Parliament in September that helped convince the European Central Bank to buy Italian bonds to try to contain surging borrowing costs.

In a bid to shore up confidence in Italy, Berlusconi presented a timetable for implementing some of them to European Union leaders at a summit this month and is now converting that plan into law. The EU stepped up pressure on Italy today to implement it.

‘Deficit of Trust’

“There is a deficit of trust toward the current policy makers in Italy on behalf of the markets,” said Vassili Serebriakov, a currency strategist in New York at Wells Fargo & Co.. “There is the view that the optimal way right now is a technocrat-led government that’s not sensitive to electorate pressures.”

The euro gained 0.8 percent in the past month against nine developed nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The dollar fell 3.3 percent and the yen tumbled 6.3 percent.

The shared currency is poised to depreciate further, according to Royal Bank of Scotland Group Plc’s Robert Sinche.

“There is a persistent pessimism, and the market is very convinced that this will eventually lead to a much weaker euro,” Sinche, global head of currency strategy at RBS Securities in Stamford, Connecticut, said in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “If it goes to a full-fledged bailout and run on Italy, the resources aren’t there.”

Japan’s U.S. Holdings

Japan, America’s second-largest foreign lender, may boost its Treasuries holdings to an all-time high after selling yen and buying dollars Oct. 31. The U.S. auctioned $32 billion of three-year debt today, attracting the biggest bid-to-cover ratio since 1993, 3.41. The measure gauges demand by comparing total bids with the amount of securities offered. The government will sell another $40 billion of notes and bonds later this week.

Japanese holdings of U.S. government securities surged after the previous three interventions starting in September 2010. After its record 4.51 trillion in yen sales Aug. 4, the holdings rose 2.4 percent to $936.6 billion in August, according to Treasury Department data.

The Swiss franc appreciated 0.2 percent to 1.2379 per euro and gained 0.7 percent to 89.49 centimes per dollar. The currency had fallen earlier after the SNB’sJordan said it “must” weaken further. It reversed declines after he said the central bank will not pursue a competitive devaluation policy.

The central bank imposed a ceiling of 1.20 francs per euro in September amid signs that the currency’s gains had started to damp economic growth.

Maintaining Floor

“The SNB has been credible in maintaining the euro-franc floor,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The SNB’s Thomas Jordan reiterated that the floor-setting was not a move to competitively devalue their currency, but rather to stem market dislocations and extreme currency overvaluation.”

South Africa’s rand was the best performer against the greenback, climbing 1.3 percent to 7.8313 per dollar. Gold futures for December delivery reached $1,804.40, the highest level since Sept. 21.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net