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Euro Rises as EU Ministers Boost Crisis Firewall

The euro rose versus the dollar, gaining the most this quarter in a year, after European finance ministers agreed to boost an anti-debt-crisis firewall, adding confidence the region’s financial problems are abating.

The dollar fell against most of its major counterparts as stocks and commodities advanced, boosting demand for higher- yielding assets. The yen erased gains after touching a three- week high against the dollar amid speculation companies are bringing home overseas earnings before the fiscal year ends tomorrow. Sweden’s krona extended a weekly gain as investors pared bets the central bank will cut interest rates.

“The confirmation of an increase in the ceiling of the financial aid funds is one thing that has supported sentiment and supported the euro,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “You’re overall seeing the euro move higher.”

The euro rose 0.3 percent to $1.3343 at 5 p.m. in New York, gaining 3 percent this quarter. It reached $1.3386 on March 27, the highest since Feb. 29. The shared currency rose 0.8 percent to 110.56 yen, advancing 11 percent this quarter, the most since the final three months of 2000.

Japan’s currency fell 0.5 percent to 82.87 per dollar after gaining to 81.83, the strongest since March 9.

Kiwi Leads
The New Zealand dollar has gained the most this year against its nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Indexes, rising 3.1 percent. The euro has risen 0.5 percent as the region’s debt crisis abated. The dollar has weakened 2.7 percent, while the yen fell 10.4 percent, its biggest quarterly drop since the third quarter of 1995, the indexes show.

Iceland’s krona and the Argentine peso are the biggest losers against the dollar this year among 25 emerging-market currencies, according to data compiled by Bloomberg. The krona lost 3 percent and the peso has fallen 1.8 percent. The Polish zloty and the Hungarian forint, among the 21 emerging-market currencies that gained against the dollar, have strengthened the most, adding 10.7 and 10.1 percent, respectively.

China’s yuan completed its first quarterly decline since December 2009 after Premier Wen Jiabao set the annual growth target at the lowest level in seven years.

China Currency
The currency rose today before a factory report that is forecast to show a fourth month of expansion. A manufacturing purchasing managers’ index for March to be released on April 1 will show a reading of 50.8, according to the median estimate of economists surveyed by Bloomberg.

The yuan declined 0.06 percent to close at 6.2980 per dollar this quarter in Shanghai, according to the China Foreign Exchange Trade System. The currency strengthened 0.13 percent today, capping a weekly advance of 0.16 percent.

European governments capped fresh rescue lending at 500 billion euros ($666 billion), after a Germany-led coalition opposed a further expansion of the region’s anti-crisis firewall.

Adding the 300 billion euros already committed to Greece, Ireland and Portugal, euro-area finance ministers put the overall size of the firewall at 800 billion euros. In a statement, they ruled out using the 240 billion euros left in the temporary rescue fund to go beyond that.

European Talks
Europe is counting on the sums pledged so far, plus a 1 trillion-euro cash infusion by the European Central Bank into the financial system, to persuade the rest of the world that it is doing enough to keep the two-year-old debt crisis at bay.

“The technical view is friendly for the euro,” Ralf Umlauf, head of floor research at Helaba Landesbank Hessen- Thueringen in Frankfurt, wrote in a note to investors.

The single currency will probably trade in a range between $1.3275 and $1.34, with the next resistance area around the Feb. 24 high of $1.3487, he wrote. Resistance refers to an area where sell orders may be grouped.

Spain, under threat of falling victim to the region’s debt crisis, will raise taxes and slash spending to achieve 27 billion euros ($36 billion) in deficit cuts as it tries to trim its budget gap by a third. The 2012 spending plan seeks to reduce the budget gap to 5.3 percent of gross domestic product from 8.5 percent in 2011, the largest reduction by the measure in at least three decades.

Spain’s Debt
“In terms of the Spanish budget, it doesn’t appear that we’ve gotten any negative surprises there,” Wells Fargo’s Bennenbroek said.

The Thomson Reuters/University of Michigan final index of consumer sentiment for March rose to 76.2 from 75.3 at the end of last month. Economists projected a reading of 74.5 after a preliminary figure of 74.3, according to the median estimate in a Bloomberg News survey.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.3 percent to 78.949, touching the lowest level since March 1.

Speculation Japanese companies are buying the yen to bring home overseas earnings before the end of the fiscal year also boosted the currency earlier.

“A lot of what we we are seeing with the yen is quarter end flows,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “Now that we are through the 82.50 level, the next resistance would come at 83, but we will most likely hang in this range ahead of the China manufacturing report on Sunday.”

Sweden’s krona strengthened for a third day versus the euro as traders trimmed bets the Swedish central bank will reduce borrowing costs this year.

December futures on the Riksbank’s key rate are at 1.26 percent, up from 1.17 percent a week ago, suggesting traders are starting to hedge bets the bank will cut once more as the economy improves. Policy makers lowered their benchmark to 1.5 percent last month to stave off a recession.

The krona advanced 0.8 percent to 6.6147 per dollar, and rose 0.4 percent to 8.8261 versus the euro.