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Euro Strengthens for a Third Month on Inflation Jump; Real Drops

The euro gained for a third straight month versus the yen after the currency region’s consumer-price index rose more this month than forecast, fueling bets the European Central Bank will refrain from further stimulus.

The dollar advanced for the first month since August before a report next week forecast to show the U.S. job market maintained gains. Canada’s dollar slid before the central bank meets. The yen fell for a fourth month versus the dollar as Japanese consumer prices climbed the most in 15 years. Japan’s currency had its worst month against the euro since April as inflation in the currency bloc rose from a four-year low in October.

“We saw that big leap lower in CPI last month, which opened up the whole deflation fear, and today’s data just reminds us it’s not a straight line,” Gavin Friend, a currency strategist in London at National Australia Bank Ltd., said of the euro area. “There are other things, such as current-account surplus and portfolio inflows. It’s more complicated than just ‘Oh, the ECB will be forced to do more easing and so the euro will go down.’”

The euro was little changed at 139.22 yen at 5 p.m. New York time, having appreciated 4.2 percent for the month. The common currency declined 0.1 percent to $1.3591, and was little changed for November. The yen declined 0.1 percent to 102.44 per dollar, having slid 4 percent since Oct. 31.

The Bloomberg Dollar Index rose 0.1 percent to 1,020.78. It has gained 0.9 percent this month.

Loonie Drops

The Canadian dollar sank to the weakest level in more than two years against its U.S. peer as the Bank of Canada prepared to meet Dec. 4 amid bets it will be slower to reduce monetary stimulus than the Federal Reserve. The currency erased a brief gain that followed data showing gross domestic product expanded at an annualized 2.7 percent pace in the third quarter, more than forecast.

“We have had this move where we’ve seen the Canadian dollar weaken more substantially than a lot of the other asset classes,” Camilla Sutton, the head of currency strategy at Bank of Nova Scotia, said by phone from Toronto.

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, depreciated 0.2 percent to C$1.0606 per U.S. dollar and touched C$1.0629, the weakest since October 2011. The loonie lost 1.7 percent for the month.

Pound Climbs

Sterling climbed to the highest in more than two years versus the greenback today, and gained in November against all of its 16 most-traded counterparts tracked by Bloomberg. A report showed U.K. mortgage approvals rose last month to the highest in almost six years, adding to signs the economic recovery is gathering pace.

“The U.K. has reasonably decent growth, certainly better growth than its peers in the euro zone and the U.S., so in that context things are looking a little bit better for the pound for sure,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. “The pound is going to trade stronger into year-end.”

The pound rallied as much as 0.3 percent today to $1.6384, the highest since August 2011, before trading at $1.6368, up 0.2 percent. It has climbed 1.7 percent this month. The U.K. currency gained 0.3 percent today to 83.03 pence per euro and touched 83.00, the strongest since Jan. 16.

Brazil’s real sank versus most major peers today and this month amid concern the nation’s fiscal deterioration will lead to a credit-rating cut, even after the central bank raised interest rates on Nov. 27.

Brazil Deficit

The government budget deficit expanded to 3.4 percent of gross domestic product in October, the widest since 2009, according to central bank data published today. Government spending has helped annual inflation stay above policy makers’ target for more than three years.

The currency has depreciated 4.1 percent since Oct. 31 to 2.3360 per dollar. It declined 0.8 percent today.

Consumer prices in the euro region climbed 0.9 percent from a year ago, the European Union statistics office said, more than the 0.8 percent median estimate in a Bloomberg News survey of economists. The ECB unexpectedly cut its benchmark interest rate to a record 0.25 percent on Nov. 7 after inflation slowed to 0.7 percent in October.

Germany’s inflation rate, calculated using a harmonized European Union method, rose to 1.6 percent this month from 1.2 percent in October, the Federal Statistics Office said in Wiesbaden yesterday.

‘Decent Month’

“This has clearly been a relatively decent month for the euro,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “The fact that we’ve seen a bit of a bounce back in inflation reduces what was already a small probability of the ECB acting in December.”

European policy makers meet next week.

The euro has gained 7.4 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.9 percent, while the yen tumbled 13.6 percent.

The yen headed for a monthly loss against most of its 16 major peers as Japanese government data today showed consumer prices excluding fresh food rose 0.9 percent in October from a year ago, the most since November 2008.

The Bank of Japan has been buying more than 7 trillion yen ($68 billion) of government bonds each month in a bid to achieve 2 percent inflation in two years since April. The currency weakened as much as 0.3 percent after the data was released.

“The market is taking note of Japan’s exit out of deflation,” said Minori Uchida, head of global market research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “The yen may test 103 per dollar with the May high in sight.”

Data next week will show employers in the U.S. added 183,000 jobs this month and the jobless rate dropped to 7.2 percent, according to Bloomberg surveys of economists. U.S. payrolls expanded by 204,000 positions in October, while the jobless rate rose to 7.3 percent.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

To contact the editor responsible for this story: Paul Cox at pcox16@bloomberg.net

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