Euro Nears Three-Month High as ECB Holds Key Rate; Franc Climbs

The euro neared a three-month high against the dollar after the European Central Bank held its main interest rate steady and President Jean-Claude Trichet said available third-quarter economic data is better than expected.

The euro also rose versus the pound as Trichet said money markets are improving as the region’s sovereign-debt crisis eases. The dollar slid versus the yen after a government report showed that U.S. initial jobless claims unexpectedly rose last week, prompting speculation the Federal Reserve will introduce stimulus measures next week. The franc gained against all 16 of its major peers after figures showed Swiss central bank currency reserves fell for a second month.

Trichet is “marginally more confident,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “He hasn’t said anything to really trouble the market and I think that’s why we’ve seen euro-dollar begin to edge higher.”

The euro rose 0.2 percent to $1.3188 as of 2:19 p.m. in London. It reached $1.3262 two days ago, the highest level since May 3. The euro appreciated 0.3 percent to 83.06 pence per euro. The dollar dropped 0.4 percent to 85.95 yen, while sterling was little changed versus the U.S. currency at $1.5866.

Europe’s single currency rallied 11 percent since reaching a four-year low on June 7 as investors gained confidence that government austerity measures will help the region weather the debt crisis. The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six trading partners, fell to the lowest level since April this week as reports signaled U.S. growth may be fading.

Euro Strength

The 16-nation currency reached an eight-week high the last time ECB policy makers met, after Trichet said the economic recovery was gaining momentum.

“The available data for the third quarter are better than expected,” Trichet said today at a press conference in Frankfurt. “The market is functioning a little bit better.”

Growth in Europe’s services and manufacturing industries accelerated in July, suggesting the recovery will maintain its momentum. A composite index based on a survey of euro-area purchasing managers in both industries rose to 56.7 from 56 in June, London-based Markit Economics said Aug. 4. The July reading matched Markit’s earlier estimate. A reading above 50 indicates expansion.

The euro pared its gains against the dollar and fell versus the yen after Trichet said the second half will be less dynamic than the second quarter. German 10-year government bonds rose.

“We are in situation where it’s clear that the second semester will be much less buoyant than the second quarter, which will be quite flattering,” he said.

‘Great Progress’

The euro climbed 2.1 percent since July 23, when stress-test results for European banks showed most lenders have sufficient capital to withstand a recession and sovereign-debt crisis.

Greece has shown “great progress” in implementing austerity measures and should qualify for a 9 billion-euro installment of emergency loans, Poul Thomsen, head of the International Monetary Fund’s Greece mission, said at a press conference in Athens today. Spain sold the maximum amount of three-year notes at an auction and its borrowing costs fell, easing concern the nation may struggle to fund its deficit.

U.S. initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April, Labor Department figures showed today in Washington. Economists surveyed by Bloomberg forecast a decline.

“It would be very premature to draw negative conclusions on the U.S. at this juncture,” Trichet said.

Dollar Index

The ECB left its rate at an all-time low of 1 percent, as predicted by analysts in a Bloomberg survey. Bank of England policy makers kept their main rate at 0.5 percent and maintained a bond-buying plan, with both decisions matching forecasts in separate Bloomberg surveys.

The Dollar Index fell 0.1 percent after a 0.4 percent advance yesterday, when the Institute for Supply Management’s index of non-manufacturing businesses rose more than economists forecast and data from ADP Employer Services showed companies in the U.S. added more jobs in July than analysts estimated.

A Labor Department report tomorrow will show employers cut 65,000 jobs in July, the second straight drop in non-farm payrolls, according to a Bloomberg survey of economists.

“The market has absorbed and priced in a much more pessimistic outlook for the U.S. economy and a Fed potentially reinvigorating its monetary easing,” Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney, wrote in an e-mailed report today. “The market continues to presume the Fed will act quickly if its recent economic slowdown becomes too severe.”

SNB Reserves

The Swiss franc appreciated 0.7 percent to 1.3769 per euro and strengthened 0.8 percent against the dollar to 1.0450. The Swiss National Bank’s currency reserves fell for a second month in July, raising speculation it’s taking advantage of a stronger euro to sell the shared European currency.

Currency holdings dropped to 219.3 billion francs from 224.9 billion in June, the bank said in a statement on its website today. That’s the second monthly decline after holdings peaked at 238.8 billion francs in May.

“They might have made use of the recovery of the euro versus the franc to reduce their currency risk,” said Ursina Kubli, a foreign-exchange analyst at Bank Sarasin & Cie in Zurich.

Kiwi Slumps

New Zealand’s dollar slumped from a one-week high versus the greenback after a government report showed the jobless rate climbed more than economists forecast, a potential spur for the central bank to slow the pace of interest-rate increases.

The unemployment rate rose to 6.8 percent from 6 percent in the previous three months, Statistics New Zealand said in Wellington. Economists in a Bloomberg News survey estimated a 6.2 percent rate.

“We saw last week the central bank move toward a slightly less hawkish stance and I think this is another piece of data, which picks up that stance,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington.

The New Zealand dollar fell 1.2 percent to 72.61 U.S. cents, and dropped 1.7 percent to 62.32 yen.

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