Bloomberg News

Euro Climbs From Seven-Week Low as German Reports Fuel Optimism

November 24, 2011

Nov. 24 (Bloomberg) -- The euro strengthened from a seven- week low against the dollar as German reports showed business confidence improved and economic growth accelerated even with Europe’s worsening debt crisis.

The 17-nation currency also advanced versus the pound amid signs Germany is softening its opposition to allowing issuance of common euro-area bonds. Australia’s dollar appreciated on speculation investors are buying the currency to diversify their assets. The yen pared gains after Standard & Poor’s said Japan’s lack of progress in tackling its public debt burden put it at risk of a downgrade.

“Risk appetite is looking a bit better,” said Jeremy Stretch, executive director of currency strategy at Canadian Imperial Bank of Commerce in London. “If we see a small improvement in risk or modest rebound in the euro, I wouldn’t necessarily want to run too hard with that.”

The euro appreciated 0.3 percent to $1.3388 at 12:27 p.m. London time, after sliding to $1.3320 yesterday, the lowest level since Oct. 6. It was little changed at 103.13 yen. The yen climbed 0.3 percent to 77.04 per dollar, trimming a gain of as much as 0.4 percent.

Swings in currency markets may be exaggerated today because of lower than usual volumes due to the U.S. Thanksgiving holiday, Stretch said.

The Munich-based Ifo institute said its business climate index increased to 106.6 this month from 106.4 in October. Gross domestic product advanced 0.5 percent last quarter, the Federal Statistics Office said, confirming an initial estimate published on Nov. 15. That was an acceleration from 0.3 percent growth in the previous three months.

German Auction

The euro tumbled 1.2 percent against the greenback yesterday after Germany received insufficient bids at a bond auction, fueling concern that Europe’s sovereign-debt crisis is driving away investors from the region’s assets.

German newspaper editorials and opposition politicians stepped up bids for Chancellor Angela Merkel to shift from an incremental approach after the government sold 35 percent less bonds than its maximum target at yesterday’s auction. Bild newspaper reported Merkel’s coalition is concerned it may have to agree to euro bonds under certain conditions.

“Better-than-expected German data helped the euro, though the rally was well underway before the data,” helped by reports that “German opposition to Eurobonds is weakening,” Adam Cole, global head of foreign-exchange strategy at RBC Europe Ltd., wrote in a note to clients.

Portugal Rating

The euro pared gains after Fitch Ratings cut Portugal credit ranking to below investment grade due to the country’s weakening economy.

“There’s still money to be shifted away from the euro and into the dollar, yen and other currencies,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “We are still in a downtrend” on the euro, he said.

Australia’s dollar snapped a three-day decline on speculation investors are buying the currency in a bid to diversify their holdings amid Europe’s fiscal crisis.

“You are seeing a very, very modest bounce in some of the higher-yielding currencies,” said Callum Henderson, global head of foreign-exchange research in Singapore at Standard Chartered Plc. “The Australian dollar, like other commodity currencies, continues to benefit to some degree from reserve diversification.”

The so-called Aussie gained 0.8 percent to 97.69 U.S. cents after dropping to 96.64 cents yesterday, the weakest since Oct. 6. The currncy climbed 0.5 percent to 75.27 yen.

‘Getting Worse’

S&P said Japanese Prime Minister Yoshihiko Noda’s administration hasn’t made progress in tackling the public debt burden, an indication it may be preparing to lower the nation’s sovereign grade.

“Japan’s finances are getting worse and worse every day, every second,” Takahira Ogawa, Singapore-based director of sovereign ratings at S&P, said in an interview. It “may be right in saying that we’re closer to a downgrade.”

The pound declined versus the euro as Bank of England policy maker Ben Broadbent said there was a possibility of a U.K. recession.

“There’s clearly a risk,” Broadbent said in a television interview with CNBC when asked if there was a chance the U.K. could slip into recession next year. “The central forecast is around for zero growth for the fourth quarter, so the chance of it being negative in that quarter is one half.”

The pound weakened 0.2 percent to 86.15 pence per euro. Sterling was little changed at $1.5544.

--Editors: Nicholas Reynolds, Mark McCord

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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