The euro rose from the weakest in almost two years against the dollar as Spanish and Italian bonds rallied amid speculation the European Central Bank will announce measures to combat the debt crisis when it meets next week.
The 17-member currency pared its biggest monthly declines this year against the dollar and the yen as polls suggested Irish voters will today endorse measures to ease the region’s debt crisis. The dollar weakened against most of its major counterparts as gains in European stocks damped demand for the relative safety of the greenback. The Norwegian krone and Swedish krona led gains in higher-yielding currencies.
“The current situation where yields on Spanish government debt are clearly unsustainable is starting to get to a point where policy action is clearly required,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The relative stability in the euro is starting to reflect a degree of expectation that we could see more significant policy action ahead.”
The euro strengthened 0.4 percent to $1.2411 at 10:01 a.m. London time after dropping to $1.2358, the weakest level since July 2010. The common currency appreciated 0.2 percent to 98.01 yen, snapping a seven-day decline. The dollar dropped 0.2 percent to 78.89 yen.
The euro has declined 6.2 percent versus the dollar this month, the most since September, and depreciated 7.3 percent against the yen.
Spanish Bonds
Spanish 10-year bond yields declined from a six-month high today even as ECB President Mario Draghi told a European Union Parliament committee the central bank cannot fill the “vacuum” of the lack of fiscal prudence and governance in the euro area. Policy makers will meet on June 6.
Irish citizens will cast ballots until 10 p.m., with 3.1 million people eligible to vote. Opinion polls indicate that supporters of the Fiscal Stability Treaty lead by about 18 percentage points even as doubts grow about the viability of the euro region.
Since its inception in 1999, the euro has traded as weak as 82.30 U.S. cents, in October 2000, and as strongest as $1.6038 in July 2008.
Source: Bloomberg