Euro Rises Most in 3 Weeks as European Leaders Guarantee Banks

By Stanley White and Candice Zachariahs

Oct. 13 (Bloomberg) -- The euro rose the most in three weeks against the dollar and the yen after European leaders agreed to guarantee bank borrowing and prevent big lenders from going under.

The currency advanced as leaders of the 15 countries using the euro pledged to guarantee new bank debt until the end of 2009, let governments to shore up banks by buying preferred shares and announced a commitment to recapitalize any ``systemically'' critical banks in distress.

``We are looking at the ladder to recovery,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The market believes that come Monday open European time there will be something on the table that is supportive for the euro.''

The euro rose 1.6 percent, the most since Sept. 22, to $1.3618 at 7:53 a.m. in Tokyo, from $1.3408 late in New York on Oct. 10. It advanced 1.6 percent, the most since Sept. 19, to 137.08 yen, from 134.96 at the end of last week. The dollar was little changed at 100.72 yen.

The Australian and New Zealand dollars rose as their governments pledged to guarantee bank deposits. The Aussie, as Australia's currency is known, jumped 5.7 percent to 67.99 U.S. cents, while the New Zealand dollar gained 2.8 percent to 61.12 U.S. cents.

Collateral Rules

The euro gained for the first day in three against the dollar as European Central Bank President Jean-Claude Trichet said the ECB will examine ways to widen its collateral rules after governments asked it to set up a facility to buy commercial paper.

The euro fell 15 percent from a record $1.60 in July through last week as leaders of the nations sharing the currency struggled to agree on plans to rescue financial institutions from the seizure in credit markets that forced Paris- and Brussels-based Dexia SA and Milan-based UniCredit SpA to raise capital because of losses.

``We need concrete measures, we need unity, which is what we achieved today,'' Nicolas Sarkozy told a press conference at the Elysee Palace in Paris yesterday at a summit with European leaders to discuss a rescue package for banks. ``None of our countries acting alone could end this crisis.''

Growth Forecast

The economy of the euro region, where the benchmark interest rate is 3.75 percent, will expand 1.35 percent this year and 1 percent in 2009, according to the median of 32 forecasts compiled by Bloomberg. Growth in the U.S., whose key rate is 1.5 percent, will be 1.6 percent this year and 1.2 percent in 2009, a separate survey of 75 economists showed.

Futures traders decreased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 18,662 on Oct. 7, compared with net shorts of 28,932 a week earlier.

Treasury Secretary Henry Paulson said Oct. 10 that the government will buy equity ``as soon as we can'' in banks and other financial institutions to weather the worst credit crisis in seven decades..

The Treasury wouldn't be involved in bank management under the equity purchase program, Paulson said in a press conference after a Group of Seven nations meeting in Washington on Oct. 10. Acquisitions would take place alongside Treasury's coming program of buying mortgage assets, he said.

Finance ministers and central bankers from G-7 countries said they would take ``all necessary steps'' to repair credit markets in a statement after their meeting.

Knee-Jerk Reaction

The Australian dollar was the biggest gainer among the 16 most-active currencies trading against the U.S. dollar after Prime Minister Kevin Rudd said Oct. 12 his government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system. The government will also guarantee all ``term wholesale funding'' by Australian banks operating in international credit markets.

``This is the knee-jerk reaction,'' said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``For it to continue we need to see evidence that financial markets are freeing up and stabilizing.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netCandice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: October 12, 2008 19:11 EDT

More Bloodshed

OMG! Just look at the market today! Hang Seng is at the 15k levels. When I was trading a year ago, 22k was normal. Gezz, Nikkei is trading at its lowest level ever at 9.2k since 1987. Indonesia has halted trading after falling more than 10%.

The market seems to be deteriotating by the day! The European bank is not going to have a Fed-like rescue because they are too big so we can expect the DAX and others to follow suit when they open soon. UK however will see the Govt assisting with a bail out plan.

It seems the more Bernanke speaks, the more the market gets weak(er). The Asian session has seen a wipeout of $5 trillion worth of value in the past week. I would expect more bloodshed to come.

Asian session as of 2.17pm

Asian session as of 4.19pm


UPDATE AS @ 4.19pm
Europe has opened for about an hour and I'll post the figures and the updates on the Asian Session. The Nikkei has not seen something like this since the Black Monday in 1987 (yes, I'm reiterating how bad the situation and don't forget, shorts are banned so we're talking about real selling here from individuals, investors, banks, FIs etc who have these stocks at hand.

UK has come up with a rescue plan at US$87bn (50p) to prevent the collapse of their bank. Cash is King!




Yesterday's Closed Market

Euro Falls to 13-Month Low as Credit Crisis Spreads to Europe

Oct. 6 (Bloomberg) -- The euro fell to a 13-month low against the dollar and the weakest in two years versus the yen as the deepening credit crisis prompted European governments to pledge bailouts for troubled banks.

The 15-nation currency declined for a sixth day against the greenback as Germany joined with banks and insurers to prevent the collapse of property lender Hypo Real Estate Holding AG and Belgium announced a revised deal to salvage Fortis, the nation's largest financial-services company. The yen jumped 5 percent versus the Australian dollar as investors cut holdings of higher-yielding assets funded in Japan, known as carry trades.

``We have to be wary of further financial stress in the euro zone because these governments may have to rescue more of their banks,'' said Osamu Takashima, chief analyst for global market sales and trading in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's largest publicly listed bank. ``The euro is in a long-term downturn.''

The euro declined to $1.3567 at 7:07 a.m. in London from $1.3772 late in New York on Oct. 3. It earlier reached $1.3561, the lowest since Sept. 4, 2007. The euro fell to 139.96 yen, the weakest since March 2006, and last traded at 140.11 from 145.11. The dollar bought 103.29 yen from 105.32, after earlier sliding below 103 for the first time in four months. The euro may decline to $1.36 by the end of March, Takashima forecast.

Against the pound, the euro fell to 77.15 pence, the lowest since March 14. It also declined to 1.5379 Swiss francs, the weakest in more than six months.

The German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue for Hypo Real Estate after an earlier bailout faltered. BNP Paribas SA, France's biggest bank, agreed to take over Fortis's units in Belgium after a government rescue failed.

European Bailouts

``It could be difficult for the European Union to take coordinated relief actions,'' Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third-biggest lender, said in a Bloomberg Television interview. ``This is a risk and the currency market is focusing on this risk.''

HSBC Holdings Plc cut its forecast for European growth next year to 0.4 percent growth from a previous prediction of a 0.9 percent, economists led by Janet Henry wrote in a note to clients dated Oct. 3. UBS AG cut its outlook for expansion in Asia excluding Japan next year to 6.1 percent from 6.9 percent.

The yen rose to 76.59 per Australian dollar, the highest since Sept. 17, 2004. It advanced to 67.04 versus the New Zealand dollar from 69.76 and to 50.5357 against the Brazilian real from 51.5240.

Unbeatable Yen

Japan's currency was the best performer in September and the only currency to appreciate against the dollar as a credit- market collapse drove Lehman Brothers Holdings Inc. into bankruptcy and sent borrowing costs in Europe to record highs.

Deutsche Bank AG, the biggest trader of foreign exchange, says the yen will rise 5 percent in coming months. New York- based Morgan Stanley is telling clients to buy the currency versus the euro and the pound.

After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reais, the yen is appreciating as $587 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4 percent on a trade-weighted basis in September, according to the Bank of Japan's effective exchange rate, the most since August 2007.

``We are in a multi-year trend reversal,'' said Paresh Upadhyaya, a senior vice president at Putnam Investment LLC in Boston, who helps manage $50 billion in currency assets. ``We are going to see a global central bank easing cycle. The yen is the place to be in this environment of economic slowdown and heightened volatility.''

Currency Futures

Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,022 on Sept. 30, compared with net longs of 31,939 a week earlier.

The dollar fell for a fourth day against the yen on speculation reports will show a deepening slump in the U.S. economy. Pending home sales fell 1.1 percent in August after a 3.2 percent decline in the previous month, according to a Bloomberg News survey. The National Association of Realtors will release the data on Oct. 8.

The U.S. Congress approved a financial-market bailout on Oct. 3, authorizing the government to spend as much as $700 billion buying troubled assets from financial institutions reeling from record home foreclosures.

Recession, Banking Crisis

Goldman Sachs Group Inc. said the U.S. economy will enter a recession ``significantly deeper'' than previously forecast, prompting the Federal Reserve to cut interest rates by at least 1 percentage point. Gross domestic product will decline in each of the next two quarters, with unemployment reaching 8 percent by the end of 2009, Goldman said in a research note.

``It's unwise to buy a currency which is both in recession and having a banking crisis,'' said Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane. The dollar will weaken to $1.45 per euro over the next month, he said.

Technical analysis shows the euro may fall to $1.3380 this week, said Kengo Suzuki, currency strategist at Shinko Securities Co. in Tokyo.

The European currency is likely to extend last week's 5.8 percent loss as its daily moving average convergence/divergence chart is showing a sell signal, according to Suzuki. Support at $1.3380 is near the euro's 200-week moving average, he said. Support is a level where buy orders may be clustered.

``There's really not much to suggest the euro can stage a meaningful recovery right now,'' Suzuki said. ``It's been caught in a wave of panic selling and the charts show it can go lower still.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

Last Updated: October 6, 2008 02:26 EDT