By Candice Zachariahs and Kristine Aquino - Dec 5, 2011 7:48 AM GMT+0700
The euro gained against the dollar, extending its first five-day advance in more than a month, before a European summit this week where the region’s leaders will seek to resolve their sovereign-debt crisis.
The 17-nation currency rose versus the yen after two 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 billion) to fight the crisis. The yen fell against all 16 of its most-traded peers as investors bought higher-yielding assets including the Australian and New Zealand dollars after a Dec. 2 report showed the U.S. jobless rate slid to the lowest since March 2009.
“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, Aussie and kiwi.”
The euro rose 0.2 percent to $1.3416 at 9:14 a.m. in Tokyo from $1.3391 on Dec. 2, when it completed a 1.2 percent weekly advance. It gained 0.3 percent to 104.72 yen. The dollar traded at 78.06 yen from 77.99 at the end of last week.
Australia’s dollar strengthened 0.4 percent to 79.97 yen and New Zealand’s currency added 0.5 percent to 60.90 yen.
IMF Proposal
German Chancellor Angela Merkel meets French President Nicolas Sarkozy today to advance a plan for stricter enforcement of the region’s deficit rules that will be presented to European Leaders at a summit on Dec. 8.
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.
The ECB will cut benchmark borrowing costs to 1 percent from 1.25 percent when it meets Dec. 8, according to the median estimate of 56 economists surveyed by Bloomberg News.
“Interestingly, a 25 basis-point cut now to 1 percent for the ECB benchmark interest rate, or especially a 50 basis point 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 Dec. 3 e-mailed note.
The currency will then decline as investors weigh further ECB action as the euro-area economy deteriorates, he wrote. UBS forecasts the common currency will drop toward $1.20 next year.
Growth, Factory Output
A second estimate of Europe’s gross domestic product will show the figure increased 0.2 percent in the third quarter, according to the median forecast of economists in a Bloomberg News survey before the report tomorrow. The 17-nation region’s economy expanded at the same pace in the previous three months.
Factory orders in Germany, Europe’s biggest economy, rose 1.9 percent in October from a year earlier, a separate survey showed before the data is released tomorrow. That comes after a 2.4 percent increase in the previous month.
“It looks as though 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.”
The euro slid 0.9 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-nation currencies.
U.S. Jobs
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 two days of gains versus the yen after Labor Department figures showed the U.S. unemployment rate declined to 8.6 percent in November, the lowest since March 2009, from 9 percent in October. Payrolls climbed by 120,000 jobs, compared with a forecast for a 125,000 increase in a Bloomberg survey.
The Institute for Supply Management’s non-manufacturing index probably rose to 53.8 last month from 52.9 in October, according to the median forecast of economists surveyed by Bloomberg ahead of the Tempe, Arizona based-group’s data due today.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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