Euro Rises to $1.31 for First Time Since May on Region's Economic Outlook

The euro climbed to $1.31 for the first time in almost three months as European confidence in the economic outlook rose to the highest level in more than two years this month and German unemployment decreased.

The Swiss franc advanced to a six-month high against the dollar on speculation the central bank was selling some of its $208 billion in reserves, which almost tripled during the past year as the national bank tried to weaken the currency.

“We’re in a bearish dollar supply mode and bullish for the euro,” said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York. “The optimism is there. People are buying the euro on dips.”

The euro appreciated 0.6 percent to $1.3078 at 4:01 p.m. in New York, from $1.2995 yesterday, after reaching $1.3107, the highest level since May 4. The euro traded at 113.63 yen, compared with 113.66. The yen strengthened 0.8 percent to 86.82 against the dollar, from 87.47.

Europe’s shared currency was headed for a 7 percent monthly rally against the dollar and a 5.3 percent gain versus the yen on the region’s economic prospects.

An index of executive and consumer sentiment in the euro nations increased this month to 101.3, the highest level since March 2008, the European Commission said. The number of people out of work in Germany fell in July for a 13th month, dropping by a seasonally adjusted 20,000 to 3.21 million, the lowest level since November 2008, the Federal Labor Agency reported.

Stress Tests

The euro was also supported this week as stress tests released July 23 found only seven European banks needed to raise additional capital.

The Federal Reserve underscored yesterday in the Beige Book business survey its view that the U.S. economic recovery, while still moving forward, is progressing at a slower pace than earlier in the year.

U.S. gross domestic product grew at a 2.5 percent annualized rate in the second quarter after expanding at a 2.7 percent pace in the first three months of the year, according to the median forecast of 81 economists in a Bloomberg News survey. The report from the Commerce Department is due tomorrow.

“There’s a good chance we’re going to see continued strength in the euro-zone data and continued weakness in U.S. data,” said Kathy Lien, director of currency research at the online trader GFT Forex, in New York. “The rallies are cautious. We’re not seeing really aggressive moves across the board.”

Outlook for Euro

The euro’s 10 percent rally from a four-year low of $1.1877 reached June 7 will probably stall as economic weakness in Europe outside Germany saps demand for the 16-nation currency, according to Rebecca Patterson of JPMorgan Chase & Co.

The shared currency may peak after reaching at least $1.3125, the next level of technical resistance, said Patterson, global head of foreign exchange at the private banking unit of JPMorgan in New York, in a radio interview today on “Bloomberg Surveillance” with Tom Keene.

“Germany is the only element of strength here,” Patterson said. “It’s Germany versus the rest of Europe. And I think with that backdrop, it’s hard to see all of this continuing very far.” Resistance is a level where sell orders may be clustered.

The Swiss franc climbed against all of its most-traded counterparts on speculation the central bank is selling reserves.

The currency appreciated as much as 1.9 percent to 1.0374 versus the dollar, the strongest level since Jan. 25. The franc gained as much as 1.1 percent to 1.3582 against the euro. Standard Bank Plc advised buying the franc against the dollar, predicting a rally to 1.0150.

Weaker Kiwi

New Zealand’s dollar fell for a third day versus the greenback after the central bank said deteriorating growth will slow the pace of future interest-rate increases.

Reserve Bank of New Zealand Governor Alan Bollard raised the official cash rate for a second month, increasing it by a quarter-percentage point to 3 percent.

New Zealand’s dollar dropped 0.4 percent to 72.41 U.S. cents, from 72.73. It slid 1.1 percent to 62.90 yen, from 63.60.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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