Dollar Rises as Fed Official’s Comments Mute U.S. Economic Data

The dollar rose to an almost two- week high against the euro as a Federal Reserve official’s comment the central bank actions won’t boost economic growth outweighed better-than-forecast data on U.S. home prices and consumer confidence.

The euro gained versus the U.S. currency earlier after European Central Bank Governing Council member Ewald Nowotny said he doesn’t see a need to cut interest rates further at the moment. South Africa’s rand rallied for a third day as investors bought the nation’s assets before an anticipated interest-rate cut. Australia’s dollar fell against all its most-traded counterparts as global stocks and commodities erased gains.

“The data from the U.S. today was relatively positive and finally we saw some life in the housing market,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “Investors are getting more comfortable with the issues of the European periphery; we’re going to enter a phase where investors refocus on growth differentials and what that means for the dollar.”

The dollar gained 0.3 percent to $1.2899 per euro at 5 p.m. New York time, reaching the strongest level since Sept. 13. The U.S. currency fell 0.1 percent to 77.80 yen. The Japanese currency added 0.3 percent to 100.36 per euro.

Euro Rally

The shared currency has rallied against all its major counterparts this month, adding to a year-to-date 0.7 percent gain versus the yen.

Barclays Plc raised its forecasts for the euro against the dollar, citing central-bank measures that have negatively affected the greenback and helped the shared currency appreciate. The bank said it expects the euro to reach $1.35 by the end of 2012, up from its previous forecast of $1.20, according to a research report.

The 17-nation currency will slide to $1.27 by year-end, according to the median of bank forecasts compiled by Bloomberg.

The euro has dropped 0.7 percent in the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as investors consider how much the ECB will spend purchasing debt of peripheral nations. The yen was the biggest gainer, rising 2 percent. The dollar advanced 0.5 percent.

The ECB cut the main refinancing rate in July to a record low of 0.75 percent and economists forecast another reduction by the end of the year, according to a Bloomberg News survey.

Rate Speculation

“There has been speculation that an interest-rate cut would be coming in October as the ECB tries to ease policy further,” said Eimear Daly, a currency market analyst at Monex Europe Ltd. in London. “The market wants Spain to ask for a bailout. The market will start to test Spain and force them in to a bailout, which is ultimately euro positive.”

The yield on three-month Spanish debt auctioned today was 1.203 percent, compared with 0.946 percent at a previous sale on Aug. 28.

Data showed German and French business confidence remained static as Italian sentiment stayed near a 15-year low, limited the euro’s gains versus the yen, after it touched a two-week low earlier.

The euro will find so-called support at 100.15 yen, the 38.2 percent Fibonacci retracement of its July-September advance, technical analysts at Credit Suisse Group AG (CSGN), including David Sneddon, wrote in an e-mailed note.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

Dollar Falls

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, rose 0.2 percent 79.672. It reached 78.601 on Sept. 14, the lowest level since February.

Economic research indicates that additional asset purchases are “unlikely to reduce long-term interest rates by a significant amount” and that lowering rates “by a few more basis points” won’t spur growth and hiring, said Fed Bank of Philadelphia President Charles Plosser, who doesn’t have a vote on policy this year.

The Conference Board’s consumer confidence index increased to 70.3 this month from 61.3 in August, figures from the New York-based private research group showed today. The September figure exceeded the most optimistic projection of economists, whose median estimate in a Bloomberg survey called for 63.1.

Home prices in the U.S. climbed in July from a year earlier, adding to signs that housing will spur economic growth. The S&P/Case-Shiller index of property values in 20 cities increased 1.2 percent from July 2011, the biggest 12-month advance since August 2010, a report from the group showed today in New York. The median forecast of 23 economists surveyed by Bloomberg called for a 1.1 percent gain.

Rand Gains

South Africa’s rand advanced against all its major counterparts. The South African Reserve Bank lowered its forecast for economic growth this year on Sept. 20, when it left the benchmark repo rate unchanged at 5 percent while Governor Gill Marcus said the risk was for slower growth as she left the door open for a rate cut.

Foreign investors bought a net 2.6 billion rand ($317 million) of South African bonds in the week through Sept. 21, bringing total purchases this year to $73.1 billion, the most in a single year on record, according to JSE Ltd. data.

The rand rose 0.1 percent to 8.2319 per dollar.

Hungary’s forint weakened for a second day as the nation’s central bank cut its benchmark interest rate for a second month in a row, reduced its economic growth forecasts and raised projections for inflation.

Hungary’s currency depreciated 0.7 percent to 284.67 per euro.

Chile’s peso advanced the most in two months as optimism in China and the U.S. spurred an advance in commodities including copper, the South American country’s biggest export.

It appreciated 1.2 percent to 470.24 per dollar.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

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

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