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The euro advanced for a third day versus the dollar as Portugal’s borrowing costs fell at an auction and on speculation European leaders are considering an expansion of aid for nations struggling to finance their debt.
Portugal sold 599 million euros ($778 million) of bonds due in 2020 at a yield of 6.716 percent, the country’s debt management agency said today. That compares with 6.806 percent at the previous auction on Nov. 10. Investors asked for 3.2 times the amount of 10-year bonds sold, up from 2.1 times at the November sale. Spain and Italy will sell bonds tomorrow.
The 17-nation currency rose against most of its major counterparts as investors exited bets that it would weaken before a meeting of euro-area finance ministers next week.
European leaders are contemplating aid for Portugal, debt buybacks, lower interest rates on rescue loans and guarantees against excessive debt, according to two people with direct knowledge of the talks.
The plan, which may include a loan to Portugal of about 60 billion euros ($78 billion) and purchases of outstanding Greek debt, would mark an attempt to contain the crisis that has frustrated unprecedented efforts by policy makers to calm markets and raised questions on the health of the euro economy.
Euro-area finance ministers will discuss elements of the package next week, though the debate is so sensitive in Germany that decisions may wait until a scheduled summit of political leaders on Feb. 4, said the people, who declined to be named because the deliberations are private.
Chancellor Angela Merkel indicated that Germany is ready to revise the terms of a 750 billion-euro ($973 billion) rescue fund for indebted states, saying Europe’s biggest economy will do whatever is necessary to protect the euro.
EUR/USD initially fell to the lows around $1.2960 before rose to $1.3140.
GBP/USD also rose from $1.5580 to $1.5780 before retreated to $1.5750.
USD/JPY fell from Y83.50 to Y82.75 before it was back to Y83.00.
UK data for Thursday at 0930GMT includes industrial production and manufacturing output, where IP is seen rising 0.7% m/m, 3.4% y/y and the manufacturing measure is expected to rise 0.5% m/m, 5.4% y/y.
The European day is dominated by policy decisions from the Bank oF England at 1200GMT and the ECB at 1245GMT. Neither of the central banks are expected to deliver a change in policy with the Bank of England MPC still split.
However, the usual post-meeting press conference by ECB President Jean-Claude Trichet will be as closely-watched as ever amid the recent peripheral bond buying by the ECB and ongoing concerns over the peripheral markets.
US data also starts at 1330GMT with weekly jobless claims data, trade data and also PPI.
Initial jobless claims are expected to fall 3,000 to 406,000 in the January 8 week.
The international trade gap is forecast to widen to $41.0 billion in November after narrowing to $38.7 billion in October. Analysts will be watching the data closely to help set up their 4Q GDP forecasts.
Meanwhile, producer prices are expected to jump 0.9% in December. The core PPI is expected to rise 0.2%, as the power to pass on higher input prices remains very weak.
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