Euro Climbs Second Day on German GDP as Yen Drops Versus Peers

The euro rose for a second day against the dollar and the yen as German growth slowed less than economists forecast and France unexpectedly avoided a contraction.

The shared currency stayed higher even after reports showed euro-area gross domestic product shrank and investor confidence fell in Germany. The yen weakened at least 0.3 percent against its 16 major counterparts as stocks rallied and minutes of the Bank of Japan (8301)’s July meeting signaled policy makers are considering expanding stimulus. The krona gained as Swedish industrial production in June rose more than analysts estimated. The dollar slipped amid bets retail sales climbed last month.

“The market had priced in the weak data coming from Europe so I’m not expecting it to react too much,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The euro will extend its recovery in the near term as risk assets continue to perform reasonably well and European equity markets recover ground.”

Europe’s 17-nation currency rose 0.5 percent to 97.07 yen at 7:56 a.m. New York time, adding to yesterday’s 0.4 percent increase. That’s the first time the euro has gained versus its Japanese counterpart on consecutive days since July 27. The euro appreciated 0.1 percent to $1.2350. The yen fell 0.4 percent to 78.64 per dollar.

The euro may climb to $1.2445 in the next week, which may prompt more gains toward $1.26, Stannard said.

Growth Data

German GDP rose 0.3 percent in the second quarter, data from the Federal Statistics Office in Wiesbaden showed today, beating the 0.2 percent median prediction of 40 economists surveyed by Bloomberg News. French GDP was unchanged in the quarter, better than the 0.1 percent decline economists had predicted, according to data from Insee, the national statistics office in Paris.

The euro-area economy contracted 0.2 percent from the first quarter, in line with analyst estimates.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, declined to minus 25.5 from minus 19.6 in July. A Bloomberg survey predicted a gain to minus 19.3.

The Stoxx Europe 600 Index (SXXP) of shares rose for the first time in three days, climbing 0.4 percent. U.S. index futures also advanced, reducing demand for the dollar and the yen as havens from financial turmoil.

‘Modest Spike’

The euro has had the biggest decline this year among 10 major currencies tracked by Bloomberg Correlation-Weighted Indexes, falling 5.6 percent. The dollar has lost 0.3 percent and the yen slipped 2.7 percent. The New Zealand dollar climbed 4.2 percent while its Australian peer rose 3.1 percent.

While Germany defied the debt crisis in the first half of the year as unemployment at a two-decade low and rising wages bolstered domestic spending, the worsening turmoil is starting to take its toll. Demand for German goods is waning in its biggest export market amid recessions in countries including Italy and Greece.

“Within the broad sweep of data that we’ve seen over the course of the last month it’s just a modest spike of light,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. (BK) in London. “There’s potential for further flight from the euro.”

BOJ Decision

The euro may end 2012 at about $1.17 or $1.18, Derrick said. That’s more bearish than the $1.22 median of 52 analyst and economist predictions compiled by Bloomberg.

Declines by the European common currency below its 21-day moving average may signal a drop to 94.12 yen, Citigroup Inc. (C)’s Tokyo-based currency strategist Osamu Takashima wrote in a report published today. The level was last seen on July 24 and was the least since November 2000, according to data compiled by Bloomberg. “The downside risk for the pair must obviously be larger than the upside,” Takashima wrote.

The BOJ avoided adding stimulus at its July meeting, expanding its asset-purchase program to 45 trillion yen from 40 trillion, while cutting its loan facility to 25 trillion yen from 30 trillion yen.

A few board members said the BOJ shouldn’t rule out any options in advance, while one said price gains without economic improvement are not good, minutes of the gathering showed today. The BOJ established an inflation goal in February.

The Dollar Index slipped for a third day as demand for the American currency as a haven waned before the retail sales data.

The 0.3 percent increase in purchases would follow a 0.5 percent drop in June, according to the median forecast of 85 economists surveyed by Bloomberg News. Another report may show prices paid by producers rose last month.

IntercontinentalExchange Inc. (ICE)’s Dollar Index fell 0.1 percent to 82.376.

Sweden’s krona gained 0.4 percent to 8.2435 against the euro and was 0.5 percent firmer at 6.6759 versus the dollar.

Swedish industrial output rose an annual 1.1 percent and a monthly 0.4 percent in June. Analysts surveyed by Bloomberg expected annual production would fall 1.1 percent and predicted a monthly decline of 1 percent.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Eleanor Lawrie in London at elawrie@bloomberg.net

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

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