Greenback gains on increasing optimism

Bloomberg

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The U.S. dollar posted the biggest weekly gain versus the euro in more than two months on optimism the worst of the financial crisis in the U.S. is over.

The Dollar Index, which tracks the greenback against the currencies of six of its biggest trading partners, completed the largest weekly advance since November after Wells Fargo’s profit beat estimates, triggering the steepest one-day gain on record in the Standard & Poor’s 500 Banks Index. The euro dropped the most against the yen since January on concern the European Central Bank will cut its benchmark interest rate to below 1 percent to spur growth.

"Wells Fargo’s results augur well for U.S. banks’ earnings and point to an easing in the financial crisis," said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow, Japan’s largest currency broker. "The dollar is likely to be bought."

The dollar climbed 2.3 percent last week to $1.3143 per euro on April 10, the biggest gain since the five days through Jan. 23. It touched $1.3090 Friday, the strongest level since March 18. The greenback strengthened 1.1 percent to $1.4672 per pound and advanced 0.6 percent to 1,333 South Korean won.

Yen’s gains

The yen appreciated 2.3 percent to 132.18 per euro, the biggest gain since the week to Jan. 23. It was little changed against the dollar at 100.24 yen from 100.31 on April 3.

The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, gained 1.9 percent last week to 85.786, the most since the five days through Nov. 21.

The U.S. currency advanced after Wells Fargo, the second-largest U.S. home lender, said on April 9 that first-quarter net income surged 50 percent because of "strong" revenue from Wachovia, which it acquired last year.

Goldman Sachs Group will release its first-quarter results tomorrow. The company is considering a multibillion dollar share sale to help repay a $10 billion government loan, the Wall Street Journal reported.

U.S. Treasury yields last week climbed to near the highest since the Federal Reserve started buying debt as the economy showed signs of improving and the U.S. sold $59 billion in debt. The 10-year yield rose three basis points, or 0.03 percentage point, to 2.93 percent, according to Bloomberg data.

The euro touched a three-week low against the dollar Friday on concern the ECB will lower its benchmark rate for a fourth time this year at its meeting next month.

ECB council member Nout Wellink said the central bank can make additional cuts to its 1.25 percent rate and is considering other measures to boost the economy.

"There is some room for lowering the interest rate," Wellink, who also heads the Dutch central bank, said April 9. "There is also room for other measures, on which we will decide soon," he said, declining to specify what action the bank might take.

Buying corporate debt

Fellow member Ewald Nowotny said cutting the rate below 1 percent was still open for debate and it would be "sensible" for the bank to buy corporate debt as it fights for an economic recovery.

"There seems to be a growing consensus for more rate reductions" from the ECB, said Akifumi Uchida, deputy general manager of the marketing unit in Tokyo at Sumitomo Trust & Banking, Japan’s fifth-largest bank. "The euro will probably weaken."

Investors should use a decline in the euro as an opportunity to buy the common European currency, according to BNP Paribas. The euro may fall to $1.30 over the next week, analysts led by Hans-Guenter Redeker, the London-based global head of currency strategy, wrote. "Any such pullback would be viewed a medium-term buying opportunity," they said.

The yen rose for a fourth day versus the euro Friday as Asian stocks pared an earlier advance, prompting some investors to reduce their holdings of higher-yielding assets.

The Nikkei 225 Stock Average trimmed its gains to 0.5 percent after earlier rising as much as 1.7 percent. The MSCI Asia-Pacific Index gained 0.6 percent following an earlier 1 percent increase.

"The Japanese stock market isn’t reacting as positively as the U.S.’s," said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank.