Euro Holds Gain Versus Peers on Bets ECB to Step Up Crisis Fight

By Mariko Ishikawa and Masaki Kondo

     Aug. 1 (Bloomberg) -- The euro remained higher against the dollar following an advance yesterday as optimism built that the European Central Bank will take steps at a meeting tomorrow to
stem the region’s debt crisis.

     The 17-nation currency held gains against the yen after France’s President Francois Hollande and Italy’s Prime Minister Mario Monti said yesterday the countries are “determined” to do everything to protect the integrity of euro zone. The greenback maintained this week’s decline against the Japanese currency before the Federal Reserve concludes a two-day meeting today amid speculation the U.S. central bank will signal additional monetary easing.

     “I’m bullish on the euro in the near term,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The ECB is expected to show its resolve and act to preserve the currency.”

     The euro bought $1.2295 as of 8:51 a.m. in Tokyo after climbing 0.4 percent yesterday to $1.2304. The shared currency traded at 96.06 yen from 96.12 yesterday, when it advanced 0.3 percent. The dollar was little changed at 78.13 yen, having fallen for the past two days.

     Spanish Economy Minister Luis de Guindos is pushing for additional budget cuts after his German counterpart, Wolfgang Schaeuble, signaled to him that such a move would be rewarded by bond market assistance, according to two people in Madrid familiar with his thinking.

                           German Aid

     De Guindos wants further cuts in health and education spending after Schaeuble told him that such a move would enable Germany to support any steps by the ECB to push down Spanish borrowing costs, said the people, who asked not to be named as the discussions were confidential. ECB President Mario Draghi also backs de Guindos’s push, said one of the people.

     Yields on Spanish government 10-year bonds traded at 6.75 percent yesterday, after rising to a euro-era record of 7.75 percent on July 25.

     Draghi pledged last week to do whatever it takes to preserve the currency. He has a proposal that involves the European Financial Stability Facility buying government debt on the primary market, buttressed by ECB purchases on the secondary market to ensure lenders transmit its record-low interest rates, two central bank officials said on July 27 on condition of anonymity.

     Further ECB interest-rate cuts and long-term loans to banks are also up for discussion, one of the officials said.

                           Fed Easing

     The greenback remained lower versus the yen after data yesterday showed U.S. consumer spending stagnated in June, supporting bets the Fed will signal further monetary easing when it concludes its meeting today. Household purchases were unchanged after a 0.1 percent decrease the prior month that was previously reported as little changed, Commerce Department data showed.

     While the Fed refrained from introducing a third round of asset purchases known as quantitative easing at its June meeting, Fed Chairman Ben S. Bernanke indicated it’s an option. The central bank bought $2.3 trillion of securities in two rounds from 2008 to 2011 to spur growth, and it has said its
benchmark interest rate will stay at “exceptionally low levels” at least through late 2014.

     “I think the Fed will ease as growth in the U.S. economy is clearly slowing,” said Mizuho’s Suzuki. “The Fed most likely will lengthen its pledge to keep interest rates low. That could be a catalyst for the dollar to be sold.”