Euro Gains as European Banks Post Better-Than-Expected Results

By Ron Harui and Yasuhiko Seki

Feb. 18 (Bloomberg) -- The euro rose from a 10-week low against the dollar after European banks reported fourth-quarter results that beat some analysts’ forecasts, easing concern the region’s financial crisis will worsen.

The European currency snapped two days of losses versus the greenback and the yen after Commerzbank AG, Germany’s second- largest bank, posted a net loss of 809 million euros ($1.02 billion), compared with analysts’ median estimate for a loss of 851 million euros. ING Groep NV, the biggest Dutch financial company, had a loss of 3.71 billion euros, versus the 3.9 billion-euro loss it forecast last month.

The banks’ results “gave short-term relief to the euro,” said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co.

The euro climbed to $1.2617 as of 7:30 a.m. in London from $1.2582 late in New York yesterday. It earlier touched $1.2559, the lowest level since Dec. 4. Europe’s single currency advanced to 116.58 yen from 116.27 yen, and traded at 88.32 British pence from 88.37 pence.

The dollar weakened to $1.4286 against the pound from $1.4238 in New York yesterday. The U.S. currency fell to 1.1672 Swiss francs from 1.1694, and was little changed at 92.42 yen.
The ICE’s Dollar Index, which tracks the greenback versus the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, was little changed at 87.580, after reaching 87.864 yesterday, the highest level since Nov. 21. The index gained 7.7 percent this year.

‘Worries Are Mounting’

Commerzbank said in a DGAP newswire statement today that its fourth-quarter net loss compared with a profit of 201 million euros a year earlier. ING also said in a statement today that its loss compared with net income of 2.48 billion euros a year earlier.

The euro had earlier fallen to a 10-week low against the dollar on speculation the 16-nation region’s banks will disclose increasing losses due to the deepening credit crisis in central and Eastern Europe.

“Worries are mounting over the financial situation in central and eastern Europe, especially about countries that have large exposure to those regions,” said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking Co., Japan’s fifth-largest bank. “The euro is likely to depreciate” to $1.25 and 115.50 yen today, he said.

Moody’s Investors Service said yesterday it may cut the ratings of several banks with units in eastern Europe, adding to concern financial turmoil in the region will deepen. Eastern European banks, which are mainly subsidiaries of financial institutions such as Vienna-based Raiffeisen Zentralbank Oesterreich AG and Stockholm-based Swedbank AB, are likely to come under “downward pressure” that may weaken their parent companies, Moody’s said.

Repatriation Flows 

Demand for the yen may increase after Asian equities fell. The Nikkei 225 Stock Average slipped 1.5 percent and the MSCI Asia-Pacific Index of regional shares weakened 0.8 percent, prompting investors to reduce holdings of higher-yielding assets.

“We continue to think that dollar-yen will decline below 90 over the coming three months, mainly because of repatriation by Japanese institutional investors toward the Japanese fiscal year-end,” analysts led by David Woo, London-based global head of foreign-exchange strategy at Barclays Capital, wrote in a research note today.

The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock price changes that’s used as a measure of risk aversion, rose 13.35 percent, the most since Jan. 20, to 48.66 yesterday.

The euro also strengthened on speculation the currency’s 1.7 percent decline against the dollar yesterday was excessive, according to Minoru Shioiri, senior manager of currency trading at Mitsubishi UFJ Securities Co. in Tokyo.

The euro’s 14-day stochastic oscillator, a technical indicator that measures momentum, was about 10 today, according to data compiled by Bloomberg. A level below 20 suggests a currency may have weakened too quickly and is poised to rebound.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
Last Updated: February 18, 2009 02:35 EST