Forex: Weekly’s review

On Monday the euro fell versus the yen and dollar as Italian Prime Minister Silvio Berlusconi faces a budget vote amid pressure to resign, stoking concern the region’s third-largest economy will struggle to manage its debt. Yields on Italy’s 10-year bonds jumped to as high as 6.68 percent, approaching the 7 percent level that drove Greece, Ireland and Portugal to seek bailouts. The rise in Italian yields pushed the spread with the German securities to 491 basis points, also a euro-era record. The franc fell after Swiss National Bank President Philipp Hildebrand said the central bank expects the currency to weaken further. Swiss inflation unexpectedly slowed to a negative rate in October, data yesterday showed.

On Tuesday the euro pared its advance versus the dollar after Italian Prime Minister Silvio Berlusconi won a vote today in parliament on last year’s budget report without an absolute majority, fueling more calls for him to quit. Italy’s 630-seat Chamber of Deputies approved the routine budget report with 308 votes, Speaker Gianfranco Fini said in Rome. Berlusconi’s failure to muster an absolute majority spurred further calls for his resignation as Italy struggles to convince investors it can fund itself. The chamber had failed to pass the report in an initial ballot last month, prompting a confidence motion won by Berlusconi on Oct. 14 with 316 votes. Since then he has faced defections that reduced his majority.

On Wednesday the dollar rose as U.S. 10-year note yields declined the most in a week as demand for refuge surged. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners climbed 1.3 percent to 77.630. The yen strengthened against most of its major peers as traders sought a haven. The Japanese currency and yen- denominated bonds were the most-sought assets, according to Bank of New York Mellon Corp. The yen tends to gain because Japan’s export-reliant economy doesn’t need foreign capital to balance current accounts the broadest measure of trade while the greenback tends to strengthen during periods of financial stress due to its status as the world’s reserve currency.

On Thursday the euro advanced from a one-month low versus the dollar after Standard & Poor’s clarified that France’s credit rating remains AAA, easing concern that a crisis was imminent in the region’s second-largest economy.

The 17-nation currency advanced earlier versus most major peers after Italy drew double the bids for the amount on offer at a bill sale, damping bets the nation will face a challenge funding itself. Greece chose an interim prime minister. Europe’s shared currency rallied from little-changed as S&P said a message was erroneously sent to some of its subscribers suggesting France’s top-notch credit rating had been lowered. It affirmed the country’s AAA rating. Lucas Papademos, a former vice president of the ECB, was chosen to lead a new Greek unity government, paving the way for a coalition charged with securing additional financing to avert the country’s economic collapse. Papademos, 64, steered the country into the euro region as central bank governor more than a decade ago. He has never held elective office.

On Friday the euro gained the most in two weeks against the dollar as renewed optimism European leaders are taking steps to contain the region’s sovereign-debt crisis spurred appetite for risk. The 17-nation currency rose as former European Central Bank Vice President Lucas Papademos was sworn in as prime minster of Greece and as Italy’s Senate approved a debt-cutting bill. Italy’s Chamber of Deputies will give final approval to the austerity legislation tomorrow and Prime Minister Silvio Berlusconi will resign “a minute later,” Chamber Speaker Gianfranco Fini said. The new government may be led by former European Union Competition Commissioner Mario Monti. Greek Finance Minister Evangelos Venizelos will remain in his post in the new coalition government headed by Papademos, which is charged with the immediate task of securing funds to avert an economic collapse. Venizelos will also be deputy premier, according to an e-mailed statement today from the press ministry in Athens.