Euro Near Highest in 8 Weeks as Italy Prepares Debt Sale

The euro was 0.3 percent from the highest level in eight weeks before Italy sells debt amid speculation the European Central Bank is preparing a bond-buying program that may cap borrowing costs for countries in the region.


The 17-nation currency headed for gains versus most of its major counterparts this month after yields more than halved at an auction of Spanish bills yesterday. ECB President Mario Draghi canceled his trip this week to the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, to prepare for the Frankfurt-based bank’s next meeting. The Australian dollar slid against most peers after a report showed declines in construction in the second quarter.

“We can apparently avert a situation where the debt crisis will trigger a collapse of the euro,” said Masato Yanagiya, head of foreign-exchange and money trading in New York at Sumitomo Mitsui Banking Corp. “Markets are expecting Spain to ask for a bailout, but it will spur the European Central Bank to undertake a measure like the Securities Markets Program,” he said, referring to the ECB’s bond-buying operation.
The euro was at $1.2556 at 12:54 p.m. in Tokyo from $1.2565 yesterday. It climbed to $1.2590 on Aug. 23, the strongest since July 4. Europe’s shared currency added 0.1 percent to 98.69 yen. The dollar gained 0.1 percent to 78.60 yen.

Italian Sale

Italy is scheduled to sell six-month bills today and as much as 7.5 billion euros ($9.4 billion) in bonds tomorrow. German Chancellor Angela Merkel will host Italian Prime Minister Mario Monti in Berlin today.
The Spanish Treasury sold 3.6 billion euros of bills yesterday, more than the 3.5 billion euros sought. The yield for three-month bills fell to 0.946 percent from 2.434 percent at the last sale on July 24. That’s the least paid for three-month bills at auction since May 22. The rate on six-month bills fell to 2.026 percent from 3.691 percent last month.


The euro has gained 0.7 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar lost 1.4 percent, while the yen declined 1.6 percent.
The ECB’s Draghi won’t go to the annual gathering of central bank officials in Wyoming this week because of the “heavy workload” foreseen in the next few days, a spokesman said yesterday. Policy makers meet in Frankfurt on Sept. 6 and the ECB president is expected to announce details of the bank’s latest efforts to lower the borrowing costs of countries such as Spain and Italy.

Fed Speculation

Fed Chairman Ben S. Bernanke is scheduled to speak at the Jackson Hole conference on Aug. 31. U.S. central bank policy makers said additional stimulus will probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting released last week. They will next gather on Sept. 12-13.

“The minutes were consequential and we don’t expect Bernanke to take it further than what the minutes said,” Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian said in a Bloomberg Television interview yesterday. “It’s highly probable that he will outline the options that the Fed has available and the commitment to do more if needed.” El-Erian is also the co-chief investment officer of the world’s largest manager of bond funds.

U.S. Economy

U.S. pending home sales rose 1 percent in July from June, when they declined 1.4 percent, based on a Bloomberg News survey of economists before the National Association of Realtors issues the figure today. The Fed will also release its Beige Book survey of economic conditions later today.
The Australian dollar weakened after the statistics bureau said construction work completed in the three months through June fell 0.2 percent after climbing a revised 7.8 percent in the previous period.
Data due tomorrow that may show the number of permits granted to build or renovate houses and apartments declined 5 percent in July, according to the median estimate of economists surveyed by Bloomberg. The figure compares with a 2.5 percent slide in June and would be the biggest drop since April.
The difference in the number of wagers on a gain in the so- called Aussie compared with those on a drop, or net longs, climbed to a 16-month high of 86,882 on Aug. 21, data from the Washington-based Commodity Futures Trading Commission showed.


“While we remain positive on the Australian dollar over the medium term, the high level of speculative positioning in the currency suggests some vulnerability to profit taking over the short term,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong, wrote in a note to clients today. The Aussie may be vulnerable to a drop to technical support around $1.0282, Kotecha wrote. Support is an area on a chart where orders to buy may be clustered.
Australia’s currency lost 0.1 percent to $1.0365 and has fallen 1.3 percent versus its U.S. peer since July 31. It last touched $1.0282 on July 25, when it dropped to as low as $1.0177.


To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net