Euro Strengthens Above $1.35 for First Time Since December 2011

The euro strengthened above $1.35 for the first time since December 2011 before a report forecast to show economic confidence in the region improved this month.

The 17-nation currency advanced for a second day against the dollar as investors await the Federal Open Market Committee’s policy statement today and whether officials will restate their commitment to asset purchases, or quantitative easing, to boost the U.S. economy. South Korea’s won weakened as a government minister said the country should consider taxes on currency trading to limit “speculative” inflows of capital.

“When we look at the economic data we have had a lot of positive surprises in the euro area,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “The Fed will keep the door open for more quantitative easing. That works out in favor of the euro.”

The euro gained 0.2 percent to $1.3521 at 9:36 a.m. London time after rising to $1.3527, the strongest since Dec. 2, 2011. The common currency advanced 0.9 percent to 123.58 yen, the highest since May 4, 2010. Japan’s currency dropped 0.7 percent to 91.40 per dollar, the least since June 21, 2010.

An index of executive and consumer sentiment in the 17-nation euro area rose to 88.2 this month from 87 in December, the European Commission will say today, according to a Bloomberg News survey of economists.

The euro rose even as a report showed Spain’s recession deepened in the fourth quarter more than forecast, with the Madrid-based National Statistics Institute saying today that gross domestic product fell 0.7 percent in the three months through December from the previous quarter, when it declined 0.3 percent. That is more than the 0.6 percent contraction the Bank of Spain predicted Jan. 23.

Europe Stabilizing

While “it still doesn’t look good in southern Europe,” other reports have signaled the region as a whole is stabilizing and the euro may climb to $1.37 by the end of March, Nordea Bank’s Christensen said. The median of 60 analyst predictions compiled by Bloomberg is $1.31.

The euro has gained 2.9 percent in 2013, the biggest advance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is little changed and the yen has fallen 5.6 percent.

“The euro will continue to rise over the next few months,” said Peter Dragicevich, a currency economist at Commonwealth Bank of Australia in Sydney. “Capital is starting to return back into the euro zone. We don’t expect a major bout of risk aversion like we’ve seen over the last few years coming out of the region.”

South Korea’s won fell 0.3 percent to close at 1,085.46 per dollar in Seoul. It rose 8.3 percent in 2012, the most among 16 major currencies tracked by Bloomberg.

Policy makers will curb “unnecessary use” of foreign currencies in import transactions by state-run firms and closely monitor other major companies’ cross-border payments as well as trading in the non-deliverable forwards market, Deputy Finance Minister Choi Jong Ku said in a speech in Seoul today.

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