Bloomberg News

Euro Reaches 2-Week High Versus Dollar on German Outlook

April 20, 2012

The euro touched its strongest level in two weeks versus the dollar after German business confidence unexpectedly increased to a nine-month high, fueling investor appetite for risk.

The 17-nation currency strengthened versus the yen amid bets the International Monetary Fund will increase its lending capacity to help keep Europe’s debt crisis contained. The pound gained for a fifth day against the dollar after U.K. retail sales climbed. Canada’s dollar advanced after consumer prices rose, fueling bets the central bank will move forward its timetable for raising interest rates.

“This is a broader sentiment recovery, and the euro is being driven by better-than-expected Ifo readings,” said Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered Plc in London, referring to the German confidence gauge. “U.K. retail sales were also quite constructive.”

The euro gained 0.6 percent to $1.3215 at 1:50 p.m. New York time, headed for a 1 percent weekly advance, the first since March 30. It touched $1.3225, the highest level since April 4. The shared currency rose 0.6 percent to 107.82 yen, poised for a 1.9 percent five-day increase, its first weekly jump since March 30. The yen was little changed at 81.57 per dollar, set for a 0.8 percent weekly drop.

The Munich-based Ifo institute said today its business climate index, based on a survey of 7,000 executives, rose to 109.9 this month from 109.8 in March. Economists in a Bloomberg survey forecast a drop to 109.5.

‘Deep Pockets’

“There is also optimism going into the IMF meeting this weekend, and there’s a good chance Christine Lagarde will achieve her $400 billion target,” said Kathy Lien, director of currency research at the online currency trader GFT Forex in New York. “The U.S. and Canada weren’t planning on contributing, but China may contribute and Russia is thinking about it, so there are countries that still have deep pockets.”

IMF Managing Director Lagarde told reporters this week before the lender’s meeting she expected the IMF’s firepower to be “significantly” increased.

The $400 billion sum is contained in the draft of a statement obtained by Bloomberg News that will be released by Group of 20 nations finance ministers and central bankers after a meeting now under way in Washington.

The near-doubling of the fund’s lending capacity is being coupled with warnings that it doesn’t absolve Europe of the need to intensify its own efforts to end the crisis.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, fell 0.5 percent to 79.187 as U.S. stocks snapped a two-day decline amid better-than-estimated earnings reports from Microsoft Corp. and General Electric Co. The Standard & Poor’s 500 Index advanced 0.7 percent.

Brazil’s Real

Brazil’s real rose versus most major counterparts, snapping five days of losses as risk appetite rose. The central bank lowered the benchmark rate this week by three-quarters of a percentage point to 9 percent and signaled more cuts may come.

The real gained 0.8 percent to 1.8663 per dollar after touching 1.8935 yesterday, the weakest level since November. Mexico’s peso also rallied today, appreciating 0.7 percent to 13.1011 to the greenback, and South Africa’s rand gained 0.6 percent to 7.8093 per dollar.

Canada’s dollar, nicknamed the loonie for the image of the aquatic bird on the C$1 coin, advanced 0.4 percent to 99.16 cents to the greenback. The nation’s consumer prices advanced 1.9 percent in March from a year earlier, after a 2.6 percent increase in February, Statistics Canada said today in Ottawa.

Rate-Boost Odds

Odds of an increase by October in the Bank of Canada’s target lending rate were about 64 percent today after the inflation data, according to Bloomberg calculations on overnight index swaps. They were about 19 percent on April 16, the day before the central bank suggested higher borrowing costs may be necessary to contain consumer debt levels.

The yen touched its weakest level since April 10 versus the dollar, 81.78, on speculation the Bank of Japan (8301) will add to monetary easing at its next meeting on April 27. Bank Governor Masaaki Shirakawa said in a speech in Washington this week the nation still needs monetary stimulus.

The BOJ set a 1 percent inflation goal on Feb. 14 and increased the size of its program to buy government debt. Deputy Governor Kiyohiko Nishimura said two days ago the central bank is ready to implement additional easing if necessary.

‘Political Pressure’

“Political pressure on the BOJ has increased, and that’s why we’re looking for a higher dollar-yen,” Mary Nicola, a currency strategist at BNP Paribas SA in New York, said in a Bloomberg Radio interview on “Bloomberg Surveillance” with Tom Keene. BNP expects Japan’s currency to weaken to 85 by mid-year.

The yen fell against most of its major counterparts today. It has tumbled 8.7 percent this year, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes . The dollar has lost 2.6 percent, and the euro has fallen 0.4 percent.

Sterling was poised for its biggest weekly gain versus the dollar in 11 months after U.K. retail sales climbed more than forecast in March.

Sales including auto fuel gained 1.8 percent, compared with February, when they declined 0.8 percent, the Office for National Statistics said today in London.

The pound rose 0.4 percent to $1.6117, headed for a 1.7 percent gain since April 13, the most since May 2011. Its five- day winning streak was the longest in three months. The U.K. currency added 0.2 percent to 81.98 pence per euro after touching 81.62 pence yesterday, the strongest level since Aug. 26, 2010.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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