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Euro Climbs as Spanish Borrowing Costs Drop

Tuesday, 17 January 2012 | 12:30
The euro rose against the dollar and the yen, snapping a two-day decline, as Spanish and Greek borrowing costs fell at auctions, damping concern the region’s most-indebted nations will struggle to fund their deficits.
The 17-nation European currency advanced versus 11 of 16 major peers tracked by Bloomberg as the ZEW Center for European Economic Research said its index (SXXP) of German economic sentiment posted a record increase in January. South Africa’s rand and Australia’s dollar rose the most against the greenback among the major currencies as a report showed the Chinese economy expanded at a faster pace than economists predicted in the last quarter of 2011, boosting demand for higher-yielding assets.
“The general theme today is risk-on,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “When you overlay this morning’s auctions with the improvement in the ZEW index, it all provides for a reasonable up-tick in the euro.”
The euro jumped 1 percent to $1.2797 at 10:29 a.m. London time. It strengthened 0.8 percent to 98.08 yen, while the dollar weakened 0.2 percent to 76.65 yen.
Spain sold 12-month debt at an average yield of 2.049 percent, compared with 4.05 percent at an auction on Dec. 13. It sold 18-month paper at 2.399 percent, down from 4.226 percent last month.
ZEW Index
The ZEW index, which aims to predict economic developments six months in advance, surged to minus 21.6 from minus 53.8 in December, its second straight increase. The gain of 32.2 points is the biggest since ZEW started the index in December 1991. Economists forecast a reading of minus 49.4, the median of 39 estimates in a Bloomberg News survey shows.
China’s economy expanded 8.9 percent in the three months ended Dec. 31 from a year earlier, the statistics bureau said. Economists in a Bloomberg survey forecast an 8.7 percent gain.
Australia’s dollar climbed versus all but one of its 16 major counterparts tracked by Bloomberg on prospects demand for commodities will be sustained in China, the country’s biggest export market.
The so-called Aussie climbed 1.2 percent to $1.0436 and reached $1.0450, the strongest since Nov. 1. The South African rand also gained 1.2 percent, to 8.0143 per dollar.
The Stoxx Europe 600 Index (SXXP) rose 1.1 percent, and futures on the Standard & Poor’s 500 Index gained 0.9 percent.
Today’s GDP report “certainly allays fears that China is going to see a hard landing and that is generally seen as a positive for the world,” said Jonathan Cavanagh, a currency strategist at Westpac Banking Corp. in Singapore. “It’s hard to get too downbeat in the near term” about the Australian dollar.
Source: Bloomberg

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