Euro Rises on Speculation Germany to Pass Vote on Bailout Fund
Sept. 29 (Bloomberg) -- The euro advanced against 13 of its 16 major counterparts before German lawmakers vote on changes to a European bailout fund.
The 17-nation currency rallied versus the dollar, reversing a decline yesterday, on speculation German Chancellor Angela Merkel will gather enough support among her coalition for today's vote on the European Financial Stability Facility. The euro rose against the yen as Asian stocks pared losses and traders speculated the currency's recent drop was too rapid. South Korea's won fell after the central bank reported the smallest current-account surplus in seven months.
"Germany will likely pass the vote," said Teppei Ino, an analyst at Bank of Tokyo-Mitsubishi UFJ Ltd. "The euro is rebounding because it's been sold excessively."
The euro climbed to $1.3613 as of 6:52 a.m. in London from $1.3543 in New York yesterday, when it lost 0.3 percent. It appreciated to 104.19 yen from 103.75 yen. The yen was at 76.53 per dollar from 76.61.
The MSCI Asia Pacific Index of shares was little changed after earlier falling as much as 1.3 percent.
The vote in Berlin on changes to the EFSF would allow the fund to buy bonds of distressed states and offer emergency loans to governments. The main opposition Social Democrats and Greens have said they will vote with Merkel's government.
"Speculation is that the coalition government is likely to have enough votes to pass the EFSF," said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. "I think it's likely to pass, but any rally is a good level to sell."
Relative Strength Index
The euro's 14-day relative strength index versus the dollar fell yesterday to 35, nearing the 30-level that some traders see as signaling an asset's price has fallen too rapidly and may reverse direction.
Gains in the common currency were limited before Italy auctions as much as 9 billion euros ($12.3 billion) of bonds today.
Italy's five-year credit-default swaps were at 462.5 basis points yesterday, showing traders see a 34 percent chance for the nation's nonpayment, compared with 4.6 percent for the U.S.
Kokusai Global Sovereign Open, Japan's biggest mutual fund by assets, reduced its holdings of Italian bonds to 7.5 percent of its 2.1 trillion-yen ($27.5 billion) portfolio from 12.3 percent in July, a report for customers of the fund showed on Sept. 26. The asset manager "considered the possibility that Europe's debt problems will last longer," according to the report.
Obama's Comments
Europe's debt crisis continues to be a drag on the U.S. economy, President Barack Obama said yesterday. "In Europe, we haven't seen them deal with their banking system and their financial system as effectively as they needed to," he said.
The U.S. economy expanded at a 1.2 percent annual rate in the second quarter, revised figures from the Commerce Department may show today, according to a Bloomberg News survey of economists. While that compares with the 1 percent pace reported last month, it's less than a third of the growth a year earlier.
The South Korean won snapped a two-day gain versus its U.S. counterpart after a report showed the current-account surplus shrank in August, dimming the nation's growth outlook.
Korean Won
The gap was $401.3 million compared with a revised $3.77 billion in July, the Bank of Korea said in a statement today.
"The narrowing of the current-account surplus was expected in the market and points to a bleak outlook for the Korean economy," said Jeon Seung Ji, a currency analyst at Samsung Futures Inc.
The won dropped 0.5 percent to 1,176.65 per dollar.
The yen earlier strengthened as much as 0.3 percent versus the dollar and 0.4 percent against the euro, amid speculation Japanese exporters are repatriating overseas earnings at the fiscal half-year end.
"There will probably be buying of the yen by Japanese exporters at the end of the first half," said Yuki Sakasai, a currency strategist at Barclays Capital in New York. "It may weigh on cross currencies and the dollar against the yen."
The yen has gained 12 percent in the past three months, the best performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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