Euro Rises Toward 16-Month High Versus Dollar on Growth Outlook

The euro strengthened toward a 16- month high versus the dollar after a report showed French business confidence was at a three-year high.

The dollar headed for a weekly decline against all its 16 major counterparts as traders reduced bets the Federal Reserve will increase interest rates this year. The Australian dollar traded near a record high as commodity price gains and signs of quickening growth backed the case for higher borrowing costs. The yuan rose to a 17-year high amid speculation China will allow faster appreciation to help temper inflation.

“The euro-zone’s recovery looks solid,” said Hitoshi Asaoka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second-largest bank. “As long as inflation is on the upside, market expectations for European Central Bank rate hikes will likely persist, which is euro- supportive.”

The euro climbed to $1.4563 as of 11:06 a.m. in London from $1.4552 yesterday, when it rose to $1.4649, the highest level since December 2009. The common currency appreciated 0.3 percent to 119.41 yen. The dollar was at 82.01 yen from 81.85 yen.

Currency trading is forecast to be lower than usual today due to the closure of markets in the U.K. and U.S. for the Easter holidays. Asian markets such as Singapore, Hong Kong, Australia and New Zealand were also shut.

French Sentiment

A French index of sentiment among factory executives was unchanged at 110 in April, the highest since December 2007, national statistics institute Insee said today.

The ECB, which aims to keep inflation below 2 percent, raised its key interest rate by a quarter-percentage point to 1.25 percent this month. Policy makers left the door open for further increases even as a sovereign debt crisis damps growth in peripheral nations such as Greece, Portugal and Ireland.

The Dollar Index headed for a fourth weekly decline before the Federal Open Market Committee meets to review interest rates on April 26-27.

The likelihood policy makers will raise the target rate for overnight lending between banks by December fell to 25 percent yesterday, from 33 percent a week ago, Fed funds futures showed. The Fed has kept its benchmark at zero to 0.25 percent since December 2008.

Most of the 50 analysts surveyed by Bloomberg last month said they expected the Fed to keep its bond portfolio stable for some time after the $600 billion program ends in June.

‘Hopeless Situation’

“The dollar is in a hopeless situation, paralyzed by low rates, a fact likely to be reaffirmed by the FOMC next week,” analysts led by Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., wrote in a note yesterday.

The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, slipped less than 0.1 percent to 74.082.

The Australian dollar was poised for a fifth weekly gain against the greenback as gains in commodity prices and stocks spurred demand for higher-yielding assets.

“Commodity markets are doing well, boosting the Aussie dollar’s allure,” Junichi Ishikawa, a Tokyo-based market analyst at IG Markets Securities Ltd. wrote in a note to clients.

The MSCI World (MXWO) Index has climbed 1.7 percent this week while the Thomson Reuters/Jefferies CRB Commodity Price Index has gained 1.3 percent.

Interest Rates

Australia’s benchmark interest rate of 4.75 percent compares with as low as zero in the U.S. and Japan, attracting investors to the South Pacific nation’s higher-yielding assets.

The Aussie climbed 1.7 percent this week. The currency was little changed today to $1.0747 after reaching $1.0775 yesterday, the strongest level since it was freely floated in 1983.

The yuan headed for a sixth weekly advance. The currency’s greater flexibility may “ease imported inflation pressures,” Hu Xiaolian, a deputy governor at the People’s Bank of China said, according to the transcript of an April 15 speech published this week.

Faster appreciation of the yuan may be a tool for curbing inflation in China, Wang Yong, a professor at the Chinese central bank’s training center in the city of Zhengzhou, wrote in a commentary published in today’s Securities Times newspaper.

“There’s lingering talk of a possible China revaluation of the yuan,” said Okasan’s Soma.

The yuan strengthened 0.2 percent to 6.5067 per dollar after touching 6.5089, the highest since the country unified official and market exchange rates at the end of 1993.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

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

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