The euro strengthened the most in a week against the dollar amid speculation European Central Bank buying of Italian and Spanish bonds will stem surging borrowing costs in the region.
Europe's shared currency rose from yesterday's five-week low versus the yen as ECB President Mario Draghi called on politicians to accelerate the implementation of agreed reforms of the region's rescue fund. Switzerland's franc appreciated versus most major peers. The Canadian dollar rallied after data showed consumer prices rose in October more than forecast.
"The underlying reason they are buying bonds is negative, but the fact that they are doing it is being viewed as positive," Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York, said of the ECB. "This market is really reacting on rumors and headlines at the moment. There is no overtly bad news out of Europe today."
The euro advanced 0.5 percent to $1.3528 at 10:54 a.m. in New York and climbed as much as 1.2 percent, the biggest intraday gain since Nov. 11. The shared currency rose 0.4 percent to 104.01 yen, after dropping to 103.41 on each of the past two days, the lowest level since Oct. 10. The dollar declined 0.1 percent to 76.88 yen.
The 17-nation currency pared its advances as U.S. stocks fluctuated.
Giving Back Gains
"The gain we saw in the euro is reflective of hopes for a solution in Europe, as opposed to particularly strong confidence that a solution could be achieved, so you're seeing it give back some of its gains," said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. "Equity markets are not entirely convincing today."
The ECB bought Italian government bonds today, according to five people with knowledge of the trades who declined to be identified because the transactions are private. Three said the central bank also purchased Spanish debt. A spokesman at the central bank declined to comment.
Italian two-year yields declined 13 basis points, or 0.13 percentage point, to 6.13 percent. They have fallen from a euro- era record of 7.48 percent on Nov. 10. The notes yielded 5.65 percentage points more than comparable German bunds today, after reaching 6.85 percentage points last week, the widest since the euro debuted 1999. Spanish two-year rates dropped five basis points to 5.44 percent from as high as 5.83 percent yesterday.
The ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, Draghi said in a speech in Frankfurt today. "Where is the implementation" of government pledges to bolster the region's rescue fund, he asked. There should be no further wait, he said.
"The euro is still very vulnerable, but one factor that has been supportive this week has been that every day when the ECB has come in and bought stressed debt, the euro has reacted favorably," said Jane Foley, a senior currency strategist at Rabobank International in London. "There's this psychology going on surrounding what the ECB might do, which is giving the euro some support."
European officials may start talks with the International Monetary Fund on a mechanism for the ECB to lend to the IMF for sovereign bailouts in the region, Dow Jones Newswires reported. Agreement on the proposal may result in an announcement at a European Union summit Dec. 9, the news agency reported, citing two unidentified people with direct knowledge of the matter.
The 17-nation currency slid 1.3 percent over the past six months versus nine developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes, as European leaders struggled to contain the sovereign debt crisis. The yen gained 9.5 percent and the dollar rose 4.1 percent.