The euro had the biggest weekly gain versus the US dollar since February as European Central Bank (ECB) officials and national leaders pledged to support the shared currency amid surging sovereign-bond yields and concern the region’s financial crisis was worsening.
The US dollar dropped against most major peers as a government report showed US economic growth slowed in the second quarter and the US Federal Reserve prepared to meet next week. The ECB and Bank of England will also meet next week.
The South African rand and the New Zealand dollar rose as risk appetite increased and stocks rallied.
“The euro has done quite well this week,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit in Toronto, said in a telephone interview. “Yields running up in Italy and Spain prompted the ECB to be a little bit more proactive in their management of this issue.”
The 17-nation currency strengthened 1.4 percent to US$1.2322 this week in New York, paring its monthly loss to 2.7 percent. It was the first weekly gain since June 29 and the biggest since Feb. 24.
The euro appreciated versus the yen for the first time in five weeks, rising 1.3 percent to 96.67. Japan’s currency was little changed against the US dollar at ￥78.46.
South Africa’s rand was the biggest winner among its 16 most-traded counterparts tracked by Bloomberg, climbing 1.6 percent to 8.1570 per US dollar.
New Zealand’s dollar strengthened 1.3 percent, the most since the week ended June 29, to US$0.8097. It touched US$0.8106 on Friday, the highest level since May 3. The Australian dollar appreciated 1 percent to US$1.0483 and reached US$1.0487 on Friday, the strongest since March 27.
Implied volatility on three-month options for G7 currencies fell toward the lowest level in more than four years, according to the JPMorgan G7 Volatility Index, touching 9.06 percent on Friday. It reached 8.32 percent on July 20, the lowest since 2007, before rising to 9.83 on Tuesday. The five-year average is 12.4 percent.
The pound rose for a third week against the US dollar as speculation the European debt crisis would be contained improved the outlook for Britain’s economy.
The UK currency appreciated 0.6 percent this week to US$1.5721 after rising to US$1.5768 on Friday, the highest since June 20. Sterling dropped 1 percent to ￡0.7862 per euro.
A decline in inflation expectations may give the Bank of England more scope to increase stimulus when it meets next week. Economists surveyed by Bloomberg forecast the Bank of England will keep asset purchases at ￡375 billion and keep its benchmark rate on a record-low 0.5 percent on Thursday.