By Ron Harui and Lukanyo Mnyanda
April 10 (Bloomberg) -- The dollar advanced against the euro, heading for the biggest weekly gain in three months, on speculation the worst of the financial crisis in the world’s largest economy is over.
The Dollar Index completed its largest weekly advance since November after Wells Fargo & Co.’s profit beat estimates yesterday, triggering the steepest gain on record in the Standard & Poor’s 500 Banks Index. The euro headed for its biggest weekly decline versus the yen since January on concern the European Central Bank will keep cutting interest rates 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 Ltd., Japan’s largest currency broker. “The dollar is likely to be bought.”
The dollar climbed to $1.3148 per euro as of 6:50 a.m. in New York, from $1.3169 yesterday. It touched $1.3090, the strongest level since March 18. The greenback has risen 2.5 percent this week, the most since the first week of the year. The U.S. currency advanced 0.8 percent to 1,332.70 South Korean won, and strengthened 0.3 percent to $1.4643 per U.K. pound.
Japan’s currency appreciated to 131.96 per euro from 132.24, and was little changed at 100.35 versus the dollar. It dropped to 101.44 per dollar on April 6, the weakest since Oct. 21.
Exchange-rate movements may be more volatile than normal as the Easter holiday reduces the volume of trading, Ishikawa said.
Dollar Index
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 this week, the most since the five days through Nov. 21. It rose 0.5 percent yesterday to 85.786. The ICE is closed today for Easter.
The U.S. currency advanced after Wells Fargo, the second- largest U.S. home lender, said first-quarter net income surged 50 percent because of “strong” revenue from Wachovia Corp., which it acquired last year.
Goldman Sachs Group Inc. will release its first-quarter results on April 14. The New York-based company is considering a multibillion dollar share sale to help repay a $10 billion government loan, the Wall Street Journal reported, citing people familiar with the matter.
Treasury yields this 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 Securities Industry and Financial Markets Association recommended trading of Treasuries be shut worldwide today for Good Friday.
Rate Cut
The euro fell for a second day against the dollar 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 spur lending and boost the economy. 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 Co., Japan’s fifth-largest bank. “The euro will probably weaken.”
Room to Lower
Investors raised bets the ECB will lower borrowing costs at its May 7 meeting. The yield on the three-month Euribor interest-rate futures contract for May delivery fell to 1.31 percent yesterday from 1.39 percent at the end of last week, according to data compiled by Bloomberg.
“There is some room for lowering the interest rate,” Wellink, who also heads the Dutch central bank, said yesterday in an interview in Leiden, The Netherlands. “There is also room for other measures, on which we will decide soon,” he said, declining to specify what action the bank might take.
The euro may extend its decline to $1.25 after dropping below a March 30 low of $1.3114, Sumitomo Trust’s Uchida said.
The $1.3114 level represents so-called support on a horizontal trend line of a descending triangle, he said. The trend line connects the March 30 low and the April 9 low, based on data compiled by Bloomberg. A descending triangle consists of horizontal and descending trend lines.
‘Buying Opportunity’
Investors should use a decline in the euro as an opportunity to buy the common European currency, according to BNP Paribas SA. 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 in a note yesterday.
“Any such pullback would be viewed a medium-term buying opportunity,” they said.
The yen rose for a fourth day versus the euro as Asian stocks pared an earlier advance, prompting investors to reduce holdings of higher-yielding assets.
The Nikkei 225 Stock Average trimmed its gain to 0.5 percent after earlier rising as much as 1.7 percent. The MSCI Asia-Pacific Index of regional shares pared its gain to 0.5 percent following an earlier 1 percent increase.
“The Japanese stock market isn’t reacting as positively as the U.S.’s yesterday,” said Ryohei Muramatsu, Tokyo-based manager of Group Treasury Asia at Commerzbank AG, Germany’s second-biggest lender. “The pullback in equities here is leading to some buying of the yen.”
Japan’s currency may strengthen to 131.30 per euro and 100 against the dollar today, he said.
To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.
