SF: Euro Gains as EU Reaches Accord, German Business Sentiment Rises
Dec. 17 (Bloomberg) -- The euro rose against most of its major counterparts after European Union leaders agreed to create a mechanism to contain future debt shocks and German business confidence unexpectedly climbed.
The common currency gained versus all of its 16 most-traded counterparts except for the Swiss franc after German business confidence rose in December to its highest since records for the reunified nation began in 1991. The yen headed for a weekly loss against most of its major peers as Asian stocks advanced. The franc touched a record high versus the euro and a six-week high against the dollar.
"We had better sentiment on the back of relatively good news on the back of the EU summit," said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. "More risk should be embedded in the euro."
The euro appreciated 0.2 percent to 111.37 yen at 8:44 a.m. in New York, from 111.14 yen yesterday. It was set for a 0.3 percent increase this week. The shared currency rose 0.1 percent to $1.3256 from $1.3244. The dollar rose 0.1 percent versus the yen to 84.03 yen from 83.91 yen. It reached 84.51 on Dec. 15, the most since Sept. 24.
German business confidence unexpectedly rose to a record in December as stronger domestic demand helped bolster the recovery in Europe's largest economy, according to data published today.
Irish Downgrade
The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 109.9 from 109.3 in November. That's the highest since records for reunified Germany began in 1991. Economists predicted a drop to 109, the median of 36 forecasts in a Bloomberg survey shows.
Moody's cut Ireland's credit rating by five levels to Baa1 after the government was forced to ask for external aid last month, staggered by losses in the banking system.
"The Irish government's financial strength could decline further if economic growth were to be weaker than currently projected or the cost of stabilizing the banking system turn out to be higher than currently forecast," Moody's said.
EU leaders will wrap up a two-day summit today in Brussels. They agreed to amend the bloc's treaties to create a permanent crisis-management mechanism that takes effect in 2013.
The European Central Bank said yesterday it will almost double its capital base to protect against losses as the institution buys bonds of governments from Portugal to Ireland to fight the debt crisis.
Merkel, Sarkozy
Germany, the biggest contributor to Europe's bailouts of Greece and Ireland, pushed through a proposal that would allow financial aid "if indispensable" to underpin the euro and may force bondholders to bear some costs of future rescues.
German Chancellor Angela Merkel ruled out putting more money on the table, retooling the post-Greek rescue European Financial Stability Facility to enable it to buy troubled government bonds, or further entwining Europe's economies through joint bond sales.
"The headlines are saying no e-bonds, no expansion of the EFSF, but that's just for now," Yu of UBS said by phone. "It will probably still have to happen later on."
"Merkel and Sarkozy are not enjoying much support from their domestic constituencies, and that keeps them from making commitments to other nations," said Manabu Tamaru, a senior investment manager at Baring Asset Management in Tokyo. "While German economy picks up, you really can't say Europe's economy as a whole is improving. The euro may drop below $1.30."
Annual View
The euro has slipped 9.4 percent this year in a measure of the currencies of 10 developed nations, according to Bloomberg Correlation-Weighted Currency Indexes. The yen has gained 10.5 percent, while the dollar is down 1.4 percent.
The Swiss franc climbed against all of its major counterparts. It added 0.4 percent against the dollar to 0.9610 and touched 0.9559, the strongest since Nov. 5. It rose 0.2 percent to 1.2743 per euro and reached a record of 1.2721.
The yen headed for a weekly decline against a basket of 10 currencies as the MSCI Asia Pacific Index of regional shares rose. People's Bank of China Governor Zhou Xiaochuan said his nation won't increase reserve ratios and interest rates at the same time, the South China Morning Post reported, citing a speech at Peking University.
Zhou said yesterday that increases in banks' mandatory reserves don't rule out interest rate increases, the Hong Kong- based English-language newspaper reported today.
"Risk sentiment remains firm, supporting higher-yielding currencies against developed nations' currencies," said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. "Currencies should strengthen against the yen."
--With assistance from Finbarr Flynn in Dublin, Jeff Black and Jana Randow in Frankfurt. Editors: Paul Cox, Greg Storey
