Euro Rises on German Sentiment; Dollar Drops Before Fed

The euro strengthened for a second day against the dollar after a German report showed investor confidence jumped this month.

The 17-nation currency rose versus all except two of its 16 major counterparts. The Dollar Index (DXY) fell the most in a week as 48 of 49 economists in a Bloomberg News survey expect the Federal Reserve will expand its bond buying program at a two-day meeting starting today. The Swiss franc fell against the euro as UBS AG (UBSN) joined Credit Suisse Group AG in saying it will charge bank clients for deposits made in the currency.

“There is an expectation that the Fed is going to announce some additional easing and there is a general risk-on sentiment after the ZEW survey out of Germany,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon. “Investors for today are willing to give risk the benefit of the doubt.”

The euro gained 0.5 percent to $1.3005 at 5 p.m. New York time, rising to the highest since Dec. 6. The common currency appreciated 0.7 percent to 107.32 yen. The dollar gained 0.2 percent to 82.52 yen.

The Dollar Index, which tracks the greenback versus the currencies of six U.S. trading partners, fell 0.3 percent to 80.057, the biggest drop since Dec. 3.

Franc Weakens

The franc declined 0.4 percent to 1.2126 per euro after depreciating to 1.2168 on Dec. 5, the weakest since Sept. 17.

UBS, Switzerland’s biggest bank, said it will start charging financial institutional clients for cash balances held in francs from Dec. 21. The amounts will be communicated individually to clients within days the bank said, adding that “we encourage our customers to keep their Swiss franc balances as low as possible.”

The franc dropped last week as Credit Suisse was said to set a negative rate of as much as minus 1 percent on balances held in the currency.

Canada’s dollar declined against most of its major counterparts. The seven-day relative strength index for the currency rose to 74, its third day above the 70 level which signals an asset’s value may have risen too quickly.

The loonie, as the currency is nicknamed, was little changed against its U.S. peer at 98.61 cents.

Yen Drops

The yen fell against most its major counterparts as global equities advanced. The MSCI World Index of stocks rose 0.6 percent and the Standard & Poor’s 500 Index gained 0.7 percent.

Sweden’s krona was the best performing major currency today, topping the euro. It gained 0.7 percent to 6.6463 per dollar and advanced 0.2 percent to 8.6437 per euro.

Spain sold a combined 3.89 billion euros of 12- and 18- month bills, the central bank said. That compared with its maximum target of 3.5 billion euros. It sold the 12-month securities at an average yield of 2.556 percent, compared with 2.797 percent on Nov. 20.

The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations climbed to 6.9 this month from minus 15.7 in November. Economists forecast a gain to minus 11.5, according to a Bloomberg News survey.

“A combination of forces, including the ZEW index” are boosting the euro, said Audrey Childe-Freeman, head of foreign- exchange strategy at Bank of Montreal (BMO) in London. “There’s a broadly more bearish dollar sentiment on the looming Fed meeting. I believe that it is just a matter of time before we test $1.30 again.”

Month View

The euro has gained 1.1 percent during the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar declined 1.4 percent and the yen slid 5.4 percent.

The dollar fell against most of its major peers before the Federal Open Market Committee begins its last meeting for 2012 today. The central bank will increase accommodation by announcing $45 billion in monthly Treasury buying in addition to the existing program of $40 billion a month of mortgage-backed securities, according to a Bloomberg survey of economists. That will push its balance sheet almost to $4 trillion.

“The market has come to expect Fed dovishness and so selling dollars before a Fed meeting has been on everyone’s radar,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “The market is focused what is going on in the U.S. and fundamentals in Europe and certainly in core Europe it still looks constructive.”

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net

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

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