The euro strengthened for a second day against the dollar after an industry report showed German business confidence unexpectedly increased in May, adding to optimism the region’s biggest economy is improving.
The 17-nation currency extended its biggest weekly advance in seven weeks as a separate report forecast German consumer sentiment will improve in June. The yen extended its biggest weekly gain versus the dollar since June after Bank of Japan Governor Haruhiko Kuroda said the central bank had announced sufficient monetary easing. Australia’s dollar weakened against all of its 16 major counterparts as HSBC Holdings and Goldman Sachs Group Inc. predicted it would weaken.
“The Ifo is crucial data for euro-dollar right now,” said Peter Frank, global head of currency strategy at Banco Bilbao Vizcaya Argentaria SA (BBVA) in London. “It’s the German economy that is going to be driving the euro-zone to the next level of improvement. It’s not going to come from anywhere else. The number wasn’t big but it was above consensus and that’s enough to push the euro higher.”
The euro advanced 0.2 percent to $1.2959 at 7:11 a.m. in New York, extending this week’s gain to 0.9 percent, the most since the period ended April 5. The shared currency dropped 0.5 percent to 131.34 yen. The yen jumped 0.7 percent to 101.31 per dollar, having risen 1.9 percent this week.
The Ifo institute’s German business climate index improved to 105.7 from 104.4 in April. Economists surveyed by Bloomberg News (GRIFPBUS) predicted it would remain unchanged. GfK AG said its consumer-sentiment index will increase to 6.5 next month from 6.2 in May. That would be the highest since September 2007.
While risks stemming from Europe’s debt crisis persist, the German economy will gather pace in the current quarter, the Bundesbank said this week. Factory orders surged for a second month in March and exports increased.
The yen rose for a second day versus the dollar as Kuroda said the BOJ will implement flexible money-market operations and he wants to avoid increasing volatility in bond markets.
Japan’s Nikkei 225 Stock Average (NKY) gained 0.9 percent today after sliding as much as 3.5 percent. It tumbled 7.3 percent yesterday, the most since the aftermath of the March 2011 earthquake and tsunami.
“The BOJ have done a huge amount and now they have to wait and see how its policy runs its course,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “It’s relatively early on in its path and Kuroda was probably quite correct to not lead the market to expect more at this stage. A lot of people had been playing the weaker yen story through stocks, and it was always vulnerable for a correction.”
The yen slumped 12 percent this year, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as the Bank of Japan doubled monthly bond purchases in April to end deflation. The euro gained 3 percent and the dollar advanced 5 percent.
The Australian dollar extended a third weekly loss as HSBC said the currency will weaken to 90 U.S. cents by year-end, compared with a previous forecast for 95.
Goldman Sachs said yesterday it remained bearish on the Aussie, expecting it to weaken to 90 cents in 12 months.
“There’s a lot of negative sentiment around the Aussie,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia, the nation’s largest lender.
Australia’s dollar fell 0.7 percent to 96.80 U.S. cents, having declined 0.5 percent this week. It dropped to 95.94 cents yesterday, the lowest since June 1.
China’s yuan rose to a 19-year high versus the dollar as the central bank set a record reference rate for the currency and Premier Li Keqiang reiterated the country was making progress in opening up its capital account.
The yuan rose 0.04 percent to close at 6.1316 per dollar, according to the China Foreign Exchange Trade System. It touched 6.1276, the strongest since the government unified official and market rates in 1993.
Financial markets in the U.S. and U.K. will be shut for public holidays on May 27.