The euro gained the most in two weeks against the US dollar, as renewed optimism that European leaders are taking steps to contain the region’s sovereign-debt crisis spurred appetite for risk.
The currency rose as former European Central Bank vice president Lucas Papademos was sworn in as prime minister of Greece and as the Italian Senate approved a debt-reduction bill. The yen reached its strongest level versus the US dollar since Japan intervened last month to weaken it. The Australian and New Zealand dollars climbed against the greenback.
“This is a small sigh of relief that you have the Italian Senate passing the austerity measures and a new government coming into place in Greece,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co in New York. “It’s a risk-on day: Emerging-market currencies have rallied, commodities have rallied, equity markets have rallied.”
The euro strengthened 1.1 percent to US$1.3750, paring a weekly drop to 0.3 percent. It climbed on Friday as much as 1.4 percent, the most since Oct. 27, when European leaders agreed to expand a rescue fund for indebted nations and reached an accord with lenders on writedowns for Greek debt. The shared currency gained 0.4 percent to ¥106.10, trimming its five-day loss to 1.7 percent.
The Japanese currency appreciated 0.6 percent to ¥77.20 versus the US dollar and touched ¥77.05, the strongest level since Japan sold yen on Oct. 31.
Australia’s dollar gained 1.2 percent to US$1.0276, while New Zealand’s dollar, called the kiwi, was up 1 percent to US$0.7853.
The greenback fell against all of its 16 most-traded counterparts.
The euro rose versus a majority of its major peers, as Italy’s 10-year government bond yield declined to as low as 6.43 percent, the least in four days. The rate soared on Wednesday to as high as 7.48 percent, exceeding the 7 percent level that led Greece, Ireland and Portugal to seek international bailouts.
Goldman Sachs Group Inc recommended buying the euro. Morgan Stanley said it’s time to sell it against the US dollar.
Emergence of new governments in Italy and Greece suggests “euro-zone fiscal tensions could continue to decline, at least for a period of time,” wrote Thomas Stolper, Goldman’s London-based chief foreign-exchange strategist, in a note.
Investors should target US$1.40 and exit the trade if the euro falls to US$1.35, according to the note.
Morgan Stanley said the euro may fall to US$1.30, wrote analysts led by Hans Redeker, head of foreign-exchange strategy in London. “Political uncertainties” and Italian bond yields that remain above 6 percent leave the firm “fundamentally bearish” on the euro “as Italy runs the risk of being too big to save,” the firm said in a client note. Traders should sell the euro, targeting US$1.3050 and end the bet if it rises to US$1.3950, it said.
The US dollar gained 4.1 percent over the past three months and the yen appreciated 1.9 percent in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The euro rose 0.5 percent.
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