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Euro Gains Versus Yen on Prospect of Combined Rescue Fund

The euro rose for a second day against the yen on prospects Europe may agree to combine two rescue funds to halt the spread of its sovereign-debt crisis.

The 17-nation euro gained before a report forecast to show German business confidence held at the highest level since July. The dollar advanced against the yen before a U.S. report this week that may show orders for durable goods increased in February. The currencies of Australia and New Zealand climbed against the yen as prospects of a recovery in the world’s largest economy boosted demand for higher-yielding assets.

“It’s possible to see euro pick up slightly as people work out the implications of the bailout package and better economic statistics,” said Hans Kunnen, Sydney-based chief economist at St. George Bank Ltd. “Sentiment toward Europe is slowly improving.”

The euro rose 0.4 percent to 109.65 yen as of 12:58 p.m. in Tokyo from the close last week in New York. It traded at $1.3264 from $1.3270 on March 23, when it touched $1.3294, the most since March 2. The dollar rose 0.4 percent to 82.66 yen.

The Australian dollar rose 0.4 percent to 86.48 yen and New Zealand’s currency gained 0.2 percent to 67.50 yen.

European policy makers are discussing how to add to bailout funds, for example by allowing the temporary European Financial Stability Facility and the permanent 500 billion-euro ($664 billion) European Stability Mechanism to work concurrently to make more money available.

Rescue Funds
Deploying unused sums from the temporary fund while allowing the ESM to operate at capacity would bring a total crisis backstop to 692 billion euros. European Union finance ministers meet in Copenhagen starting on March 30.

German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble have abandoned their opposition to combining the two euro-area rescue funds, Der Spiegel reported, citing unnamed government officials. The two German leaders have agreed that the permanent and temporary rescue funds may be “held in operation” for a transitional period, the magazine said in an e-mailed preview of its article.

The euro was 0.2 percent from a three-week high against the dollar before the Munich-based Ifo institute releases its German business climate index today. The gauge, based on a survey of 7,000 executives, stayed at 109.6 in March, according to a Bloomberg News poll of economists.

The euro climbed 0.6 percent in the past week, according to Bloomberg Correlation Weighted Indexes that track 10 developed market currencies. The yen has strengthened 1.3 percent over the period, while the dollar gained 0.4 percent.

Dollar Gains
The dollar rose for the first time in four days against the yen before a March 28 report projected to show bookings for long-lasting factory goods rose 3 percent last month after decreasing 3.7 percent in January, according to the median estimate of economists surveyed by Bloomberg News.

“The U.S. economic data in the next few weeks will be critical for U.S. dollar prospects,” New York-based Yuki Sakasai and Aroop Chatterjee, currency strategists at Barclays Capital, wrote in a note to clients. “The U.S. dollar would likely find support against yen and Swiss franc.”

Gains may be limited as the U.S. currency’s decline below its 20-day moving average last week may signal a reversal of the greenback’s bullish trend, Gaitame.com Research Institute Ltd. said, citing trading patterns.

The dollar fell to as low as 81.98 yen on March 23, breaching its 20-day moving average for the first time since Feb. 8, said Takuya Kawabata, a Tokyo-based researcher at Gaitame.com, a unit of Japan’s largest currency-margin company. A close below that average, which is at 82.30 today, may signal a “downward correction,” for the dollar, he said.
Frontier Currencies

Foreign-exchange traders, faced with lower volatility and record low interest rates in the U.S., Europe, the U.K. and Japan, are searching for returns as far afield as Kazakhstan and Nigeria. The JPMorgan G7 Volatility Index (JPMVXYG7) has fallen to 10.14 percent from 12.35 percent in December, reducing money managers’ ability to exploit price moves.

Investec Asset Management Ltd., which trades currencies of nations from Colombia to Uganda, said demand for assets in so- called frontier markets increased in the past six months. The Cambridge Strategy (Asset Management) Ltd. invested in the Nigerian naira from December to February. Money manager Adrian Lee & Partners will add positions in six currencies, including Kazakhstan’s tenge and the Kenyan shilling by the end of the second quarter.

Colombia, where mining helped the economy expand 5.9 percent last year and the benchmark rate is 5.25 percent, saw the peso strengthen more than 10 percent this year, tied with Poland’s zloty for the most among more than 170 currencies tracked by Bloomberg. Kenya’s shilling is up 29 percent since October from a record low and Chile’s peso has advanced 6.2 percent against the dollar his year.