Euro Rises Before German Sentiment Report Amid Spain Rescue Bets

By Lukanyo Mnyanda and Mariko Ishikawa - Oct 16, 2012 4:46 PM GMT+0800

The euro climbed above $1.30 for the first time in more than a week before a report that analysts said will show German investor sentiment improved for a second month in October.
Europe’s 17-nation currency strengthened for a fourth day versus the yen as the Financial Times reported that Spain has found an acceptable formula for seeking financial aid. The dollar and the yen fell against most of their major counterparts before U.S. reports that economists said will show improvement in industrial production and housing starts, damping demand for the safest assets. Federal Reserve Bank of St. Louis President James Bullard said U.S. growth will pick up next year.

“We have a general risk-on mode” helping the euro to appreciate, said Daragh Maher, a currency strategist at HSBC Holdings Plc in London. “There’s also the local news with the suggestion that Spain was pretty much on the brink of asking for help. That has helped. It was a combination of the two that brought us above $1.30.”

The euro added 0.5 percent to $1.3007 at 9:45 a.m. London time, after reaching $1.3013, the strongest level since Oct. 8. Against Japan’s currency, it gained 0.7 percent to 102.58. The yen slipped 0.3 percent to 78.86 per dollar.
Europe’s common currency has gained 0.5 percent in the past week, the second-best performance after the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. That cut its decline this year to 2.1 percent. The yen has fallen 5.1 percent in 2012.

German Confidence

German investor confidence climbed to minus 14.9 this month from minus 18.2 in September, according to the median forecast of 36 economists in a Bloomberg News survey. The ZEW Center for European Economic Research in Mannheim is scheduled to release the report at 11 a.m. local time.

Spain will wait for European partners to settle issues over the sequencing of a bailout request and its consequences for Italy, the Financial Times reported today, citing a senior economy ministry official.
“The better the chances of a bailout for Spain, the more risk-on that is,” said Neil Jones, the head of European hedge- fund sales at Mizuho Corporate Bank Ltd. in London. “You’ve got a market that’s not really prepared for the upside or risk on, so the positions that are out there are designed to hedge against euro catastrophe.”
The Dollar Index (DXY), which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krone, declined 0.3 percent to 79.516.

Industrial Production

U.S. industrial production increased 0.2 percent in September from the previous month, when it fell 1.2 percent, according to the median estimate of 85 economists surveyed by Bloomberg News before the Fed releases the figures today.

Analysts in a separate survey forecast that Commerce Department data due tomorrow will show new housing construction climbed 20,000 from August to a 770,000 annual rate last month, the most since October 2008. The department reported yesterday that retail sales increased 1.1 percent last month, following a revised 1.2 percent gain in August that was the biggest since October 2010.
“I still think it is reasonable to expect faster growth as we go forward,” Bullard said in a speech in St. Louis yesterday. “The normal expectation would be the effects start to dissipate” from headwinds that have included the European debt crisis and the slow housing recovery, he said.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net