Euro Climbs as Inflation Data Damps ECB Speculation; Pound Rises

The euro rose to a four-year high against the yen as annual inflation in Germany accelerated in November more than economists forecast, damping bets the European Central Bank will further loosen monetary policy.

The shared currency climbed for a third day against the dollar as separate reports showed consumer-price growth in the German states of Saxony and North Rhine-Westphalia increased for the first time in five months. The ECB cut its benchmark interest rate this month after inflation in the currency bloc slowed to a four-year low in October. The pound rose for a third day versus the dollar as Bank of England Governor Mark Carney said the central bank will end incentives for mortgage lending.

“The more resilient German inflation is, the higher the hurdle is for more easing from the ECB,” said Eimear Daly, a currency-market analyst at Monex Europe Ltd. in London. “The inflation number from Saxony significantly boosted the euro,” she said, referring to the first regional report to be released.

The euro climbed 0.3 percent to 139.08 yen at 2:52 p.m. in Toronto after advancing to 139.18, the highest since June 2009. The shared currency added 0.2 percent to $1.3603. The dollar rose 0.1 percent to 102.24 yen after touching 102.37, the strongest level since May 29.

U.S. financial markets are shut today for a public holiday.

The annual inflation rate in Germany, calculated using a harmonized European Union method, rose to 1.6 percent this month from 1.2 percent in October. The median forecast of analysts in a Bloomberg survey was for a reading of 1.3 percent.

Firmer CPI

“The CPI numbers were a little bit firmer than had been forecast for Germany,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto. The data provided investors with “relief that we didn’t get weaker numbers, more disinflation, and more speculation of ECB easing that would have resulted from that.”

Analysts in a separate Bloomberg survey estimate European Union statistics office data tomorrow will show consumer prices in the euro region rose 0.8 percent in November from a year ago, after increasing 0.7 percent the prior month.

The pound rose as Carney said allowances under the central bank’s Funding for Lending Scheme will only apply to business lending from 2014 and will no longer be available for home loans.

“Sterling reacted positively to what Carney said because the perception is that the Bank of England is using macro-prudential measures to head off risk to market stability that could come from the housing market,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Some see that as hawkish.”

Pound Rallies

The pound rose 0.3 percent to $1.6343 after climbing to $1.6358, the highest since Jan. 2. It gained 0.2 percent to 83.24 pence per euro after touching 83.13 pence, the strongest since Nov. 7.

The pound was the best performer against the dollar this month among 16 major currencies tracked by Bloomberg, gaining 2 percent, while the Australian dollar was the biggest loser.

Australia’s dollar rose for the first time in seven days today after data showed private capital spending jumped 3.6 percent in the third quarter from the previous period, when it rose a revised 1.6 percent. The median forecast of economists surveyed by Bloomberg was for a 1.2 percent decline.

The Aussie rose 0.4 percent to 91.13 U.S. cents after declining to 90.65 yesterday, the weakest since Sept. 4.

In Brazil, the real appreciated for the first time in four days after the nation raised its benchmark lending rate late yesterday for the sixth time this year, increasing it half a percentage point to 10 percent. The currency gained as much as 0.4 percent to 2.3223 per dollar after sliding 2.2 percent in the previous three days.

To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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