Bloomberg News

Dollar Trades Near 7-Week High Against Euro Before German Data

November 23, 2011

Nov. 24 (Bloomberg) -- The dollar was 0.3 percent from a seven-week high against the euro before a German report that may show a gauge of business confidence dropped for a fifth month, increasing the allure of the U.S. currency as a haven.

The yen climbed against all its major counterparts as Italy prepares to sell bills tomorrow after Germany failed to get bids for 35 percent of the 10-year government bonds that it offered for sale yesterday. Australia’s dollar reached a six-week low versus the yen as Asian stocks extended a global rout.

“There will be a rush for safe havens like the dollar now,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “It’s quite clear that the picture is deteriorating at a fast pace in the euro zone.”

The U.S. currency traded at $1.3363 per euro as of 10:16 a.m. in Tokyo from $1.3342 in New York yesterday when it reached $1.3320, the highest since Oct. 6. The euro slid 0.2 percent to 102.97 yen, extending yesterday’s 0.8 percent decline. The yen climbed 0.3 percent to 77.06 per dollar.

The Australian dollar slid 0.1 percent to 74.82 yen and earlier reached 74.79 yen the weakest since Oct. 10.

The Ifo institute’s business climate index for Germany dropped to 105.2 in November, the lowest since March 2010, according to the median forecast of economists in a Bloomberg News survey. The Munich-based group will release the data today.

European Recession

“Europe is headed for a recession,” said Koji Fukaya, chief currency strategist in Tokyo at Credit Suisse Group AG. “Risk aversion and euro weakness are likely to prevail for a while.”

Italy will sell 8 billion euros ($10.7 billion) of bills tomorrow. Yields on Germany’s 10-year debt soared 22.9 basis points, the biggest jump since 1990, amid doubts about the status of the securities as a haven from the region’s crisis.

European Central Bank Governing Council member Ewald Nowotny said Germany’s difficulty in getting bids for its debt auction are an “alarm,” Austria Press Agency reported.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trade partners, rose yesterday after Fitch Ratings’ report said France risks losing its top credit ranking in the event of further economic shocks, adding to concern European debt crisis is engulfing larger nations.

France Rating

“The increase in government debt has largely exhausted the fiscal space to absorb further adverse shocks without undermining their ‘AAA’ status,” Fitch said of France yesterday in a report. Fitch follows Moody’s Investors Service and Standard & Poor’s in signaling France’s vulnerability to the debt crisis, even as it retains its AAA rating with a stable outlook.

The IntercontinentalExchange’s Dollar Index climbed to 79.184 yesterday, the highest since Oct. 6, and traded at 78.940 today.

The Dollar Index “has a long way to go,” said Nomura’s Magnus. “The jigsaw puzzle is falling apart. The ECB is the only savior of this and until then, it is the rush for the dollar.” Magnus expects dollar to rise to $1.30 per euro toward the end of next month.

The MSCI Asia Pacific Index of stocks fell 0.5 percent after the Standard & Poor’s 500 Index of U.S. shares slid 2.2 percent yesterday.

--With reporting by Hiroko Komiya in Tokyo. Editors: Rocky Swift, Naoto Hosoda

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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