The euro advanced to the strongest level in more than 10 weeks against the dollar as a report showed German business confidence rose to the highest level in seven months amid progress taming the region’s debt crisis.
The dollar dropped after U.S. initial jobless claims held at a four-year low, damping the search for safety. The yen rose against the dollar after the sale of seven-year Treasury notes was met with stronger-than-average demand. Higher-yielding currencies appreciated as a measure of volatility among Group of Seven currencies dropped to the lowest in more than three years.
“What’s happening is that European financial institutions seem to be fairly robust,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “From a market’s viewpoint, it’s very important, and that’s what’s driving the euro.”
The euro strengthened 0.9 percent to $1.3373 at 5 p.m. New York time, after reaching $1.3379, the most since Dec. 12. It advanced 0.6 percent to 106.98 yen and gained 0.4 percent to 84.94 British pence. The yen rose 0.4 percent to 80 against the dollar, snapping a five-day losing streak that was its longest in 10 months.
The euro extended its gain against the dollar after it broke above a key level of $1.3350, according to Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc.
“We had a pretty important level at $1.3350 and stops are being taken out,” said Nordvig. “I wouldn’t be surprised if some people are going to take risk off the table. The pain is the biggest in euro-dollar.”
The shared currency traded above its 100-day moving average of $1.3308 today for the first time since Oct. 31.
Higher-yielding currencies, led by South Africa’s rand and New Zealand’s dollar, rallied against their U.S. and Japanese counterparts as stocks and crude oil rose. The Standard & Poor’s 500 Index added 0.4 percent.
The rand rose 1 percent to 7.6599 per dollar and 0.6 percent to 10.44 yen. The New Zealand dollar appreciated 0.8 percent to 83.63 U.S. cents and 0.5 percent to 66.90 yen.
The euro gained as Munich-based Ifo institute said its business climate index climbed to 109.6 from 108.3 in January, the highest reading since July, amid efforts to prevent a default by Greece.
The 17-nation currency stayed higher even after the European Commission forecast of a shrinking euro-zone economy in 2012, with Italy and Spain facing sudden crunches as they battle to escape the debt crisis. The euro bloc will contract 0.3 percent, the commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.
Further euro gains may be limited as the Institute of International Finance said in its February Global Economic Monitor that an orderly resolution of the Greek debt crisis “remains a key challenge.” There is the “risk of a subsequent debt restructuring,” following the pending private-sector involvement deal, according to the IIF, which has been negotiating on behalf of private creditors in talks with Greece.
Applications for U.S. jobless benefits were unchanged in the week ended Feb. 18 at 351,000, the fewest since March 2008, Labor Department figures showed today. The median projection in a Bloomberg News survey called for 355,000 claims, marking the fourth straight week that the figures have been better than forecast. The number of people on unemployment benefit rolls dropped to the lowest level since August 2008.
At today’s seven-year auction, the notes drew a yield of 1.418 percent, compared with a forecast of 1.456 percent in a Bloomberg News survey of 11 of the Federal Reserve’s primary dealers. The bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 3.11, compared with an average of 2.81 for the previous 10 sales.
“A very well-received auction has pushed interest rates a bit lower,” said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Plc in Stamford, Connecticut. “The reaction of the dollar weakening against the yen and the euro is consistent with that decline in medium-term interest rates.”
Implied volatility of three-month options on Group of Seven currencies as tracked by the JPMorgan G7 Volatility Index fell as low as 9.76 percent today, the least since August 2008. A lower figure makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
Brazil’s real dropped for the first time in four days, falling 0.5 percent to 1.7137 per dollar, after earlier touching 1.6967, the strongest since Oct. 31.
It weakened after the nation’s central bank bought dollars in the forwards market a day after intervening in the spot market to stem the currency’s 9.2 percent three-month rally.
The central bank today sold 3,500 reverse-currency-swap contracts due in July and rejected all bids on contracts due in April. The bank bought dollars in the spot market yesterday for 1.7083 reais.
Crude oil for April delivery rose 2.5 percent to $108.60 in electronic trading on the New York Mercantile Exchange today after advancing to $108.74, the highest level since May 5.
The surge helped the currencies of Norway and Canada, both oil exporters, gain.
The krone rose 0.6 percent to 5.6150 per dollar and the loonie, as Canada’s currency is known, added 0.2 percent to 99.75 Canadian cents per U.S. dollar. The krone fell 0.3 percent to 7.5087 per euro after appreciating as much as 0.7 percent to 7.4371, the strongest level since January 2003.
“The risk is that the next big worry wart is going to be this continued strength in oil prices,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “It could undermine some of the current growth optimism.”
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