The euro advanced from a three-week low against the dollar as stress-test results bolstered confidence in Spain’s banking system, adding to speculation the region is moving closer to resolving its debt crisis.
The 17-member currency strengthened versus all but one of 16 major peers after Moody’s Investors Service said Spain’s bank recapitalization is positive for the nation’s credit rating. Results of stress tests as part of terms to win a European bailout showed Sept. 28 Spanish banks have a capital deficit less than previously estimated. The pound weakened as a report showed an index of U.K. manufacturing fell more than economists forecast in September.
“Much of the negative news has been discounted and we’re in a position whereby the market is still very hopeful that we’re moving in Europe toward some more positive news with regards to Spain,” said Ian Stannard, head of European foreign- exchange strategy at Morgan Stanley inLondon. “The euro is going to be very well supported in this environment.”
The euro advanced 0.2 percent to $1.2889 at 7:20 a.m. New York time, after dropping as much as 0.4 percent to $1.2804, the weakest since Sept. 11. It strengthened 0.3 percent to 100.51 yen, also erasing a 0.4 percent decline. Japan’s currency was little changed at 77.98 against the greenback.
Stannard sees “scope for a sizeable rebound” for the euro to around 104 yen and forecasts the shared currency will climb above $1.30 over the next two weeks.
Stress Tests
Spain commissioned the stress tests as part of terms to win external financial aid of as much as 100 billion euros for its banking system. They showed a deficit of 59.3 billion euros. Spain’s 10-year bonds rose for a third day, with the yield slipping five basis points, or 0.05 percentage point, to 5.89 percent.
The euro advanced even after reports showed manufacturing in the region contracted for a 14th month in September and the unemployment rate reached the highest on record.
A gauge of manufacturing based on a survey of purchasing managers was 46.1, above an initial estimate of 46 on Sept. 20, Markit said today. The index has held for 14 months below 50, indicating contraction, and fell as low as 44 in July. Unemployment was 11.4 percent in August, the same as in June and July after those months’ figures were revised higher, according to the European Union’s statistics office.
The euro lost 3.6 percent in the past six months, the biggest drop after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar added 0.2 percent and the yen jumped 7.2 percent.
Factory Output
The pound depreciated against 14 of its 16 most-traded counterparts as a gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 48.4 last month from a revised 49.6 in August. The median forecast of 29 economists in a Bloomberg News survey called for a reading of 49.
Sterling dropped 0.2 percent to $1.6139 after reaching $1.6109, the lowest since Sept. 13. The pound was 0.4 percent weaker at 79.85 pence per euro. It appreciated to 79.24 pence on Sept. 27, the strongest since Sept. 6.
Sweden’s krona is the best performer in a basket of developed-market peers since June, with a 3.11 percent advance, about twice that of the second-placed Norwegian krone.
Strategists raised their estimates for the currency against the dollar by about 8 percent in less than three months as the central bank last month signaled that it sees no need to curb the krona’s advance. That’s in contrast to the dollar, which fell last quarter as Federal Reserve Chairman Ben S. Bernanke’s open-ended stimulus plan debased the currency, and the euro, which weakened amid a third year of debt turmoil.
‘Wind Behind’
Sweden’s krona weakened 0.2 percent to 6.5756 per dollar, after advancing 5.2 percent against the U.S. currency in the third quarter. It slipped 0.4 percent to 8.4722 per euro.
“The krona can go a lot further,” John Taylor, the founder and chief executive officer of New York-based hedge fund FX Concepts LLC, which manages $3 billion, said in a Sept. 27 interview. “Sweden has the wind behind it because Bernanke is making the dollar go down and Europe keeps having these traumas.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, slid 0.1 percent to 79.820 after climbing earlier to 80.147, the highest since Sept. 11.
‘Net Shorts’
The difference in the number of wagers by hedge funds and other large speculators on a decline in the U.S. Dollar Index compared with those on a gain -- so-called net shorts -- was 3,970 on Sept. 25 compared with a net long position of 4,896 a week earlier, according to figures from the Washington-based Commodity Futures Trading Commission.
Australia’s dollar touched the lowest in more than a year against its New Zealand counterpart before the larger nation’s Reserve Bank holds a policy meeting tomorrow.
Interest-rate swaps data compiled by Bloomberg show traders see an 87 percent chance that RBA policy makers will lower the overnight cash-rate target by 25 basis points from 3.5 percent. That contrasts with the median forecast of economists in a Bloomberg survey that predicts officials will keep the benchmark unchanged for a fourth-straight meeting.
“The bottom line is that a dovish bias will most likely emerge from the RBA, if not in the form of an actual interest rate cut, most probably through a dovish statement,” Audrey Childe-Freeman, head foreign-exchange strategist at Bank of Montreal (BMO) in London. “All this points at potential near-term downside risk for the Australian dollar.”
The so-called Aussie dollar touched NZ$1.2469, the lowest since September 2011, before trading 0.2 percent lower at NZ$1.2483.
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