Euro Rises as German Confidence Increases; Aussie Dollar Weakens

The euro rose to the highest in more than four years versus the yen after a German report showed Europe’s economic recovery may be gaining momentum, easing speculation the central bank will cut interest rates further.

Australia’s dollar fell against all of its 16 most-traded peers amid speculation the nation’s central bank will take steps to curb the currency’s strength. The yen reached a four-month low versus the dollar after Bank of Japan Governor Haruhiko Kuroda said he will do his utmost to restrict an increase in long-term yields. Futures traders increased their bets that the yen will decline against the dollar to the most in six years.

“It looks like we’re going to see the euro zone return to genuine growth in 2014,” said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York. “There seems to be a finite magnitude in terms of how far the ECB can go to cut rates. That’s no longer driving investors away from the euro.”

The euro gained 0.7 percent to 137.28 yen at 5 p.m. New York time after touching 137.25, the highest level since October 2009. The shared currency rose 0.6 percent to $1.3558 and advanced for a second week. The dollar added 0.1 percent to 101.27 yen after reaching 101.35 yen, the strongest since July 8.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major counterparts, fell 0.2 percent to 1,018.56 to pare its weekly gain to 0.2 percent.

Krona, Rand

Sweden’s currency rose the most in two weeks versus the euro as an index of Sweden’s consumer confidence in November rose to 104.9 from 102 the previous month, the National Institute of Economic Research said in statement today. Manufacturing confidence increased to 105.8 from a revised 101.7 in October.

The krona gained 0.3 percent to 8.9225 per euro after adding as much as 0.8 percent, the most since Nov. 7, and appreciated 0.8 percent to 6.5792 per dollar.

The rand approached a three-week high after South Africa’s central bank indicated it may raise borrowing costs as a weaker currency fuels inflation.

Governor Gill Marcus “iterated time and again in the statement about the continued risks to inflation along with a downward revision in growth, so on balance it was certainly more hawkish than we expected,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by e-mail.

South Africa’s currency advanced 0.6 percent to 10.070 per dollar, after declining 0.3 percent earlier, approaching the highest since Nov. 1.

‘Vulnerable’ Aussie

The Aussie fell for the third day against the dollar after Reserve Bank of Australia Governor Glenn Stevens said in a speech in Sydney yesterday that foreign-exchange intervention can be effective as long as it’s “judiciously used in the right circumstances.”

“The Aussie is looking very vulnerable,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “The RBA has once again focused in on the currency, citing it as overvalued. There are domestic and international reasons to be negative and we are looking for the move to continue.”

The Aussie fell 0.6 percent to 91.83 U.S. cents after touching 91.44, the weakest since Sept. 6. It lost 2 percent since Nov. 15, a fifth weekly drop, matching the longest such stretch since June.

The currency traded at NZ$1.1206 after touching NZ$1.1170, the lowest versus the New Zealand dollar since October 2008.

Kuroda Comments

Japan’s currency weakened for a fourth week versus the greenback, the longest slump since February, as Japanese bond yields fell to the lowest in two months relative to their U.S. counterparts.

Japan’s central bank kept its pledge at a policy meeting yesterday to expand the monetary base by as much as 70 trillion yen ($691 billion) a year to help spur inflation.

The yen isn’t “excessively weak,” Bank of Japan Governor Kuroda said in parliament today in Tokyo. Inflation will hit the BOJ’s 2 percent target in the latter half of the central bank’s two-year time frame and policy makers will adjust its bond-buying program as needed, he said.

The extra yield that U.S. 10-year Treasuries offer over similar-maturity Japanese bonds expanded to 2.19 percentage points on Nov. 20, the widest level since Sept. 12 based on closing prices. It was at 2.12 percent today.

The yen has tumbled 13 percent this year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar strengthened 3.7 percent and the euro advanced 6.9 percent.

Yen Bears

Futures traders placed the biggest bet on a decline in the yen against the dollar since July 2007, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 112,216 on Nov. 19, compared with net shorts of 95,107 a week earlier.

The Ifo institute’s German business climate index, based on a survey of 7,000 executives, increased to 109.3 from 107.4 in October. That was the highest reading since April 2012. Economists surveyed by Bloomberg forecast a gain to 107.7.

“I’m relatively positive on the euro,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “I don’t really have the impression the actual backdrop is really that bad. Underneath, it actually has a decent tone.”

The Bundesbank said this week that the German economy remains on a “solid growth path.” Investor confidence rose to the highest level in four years in November, unemployment remained near a two-decade low in October and factory orders climbed more than economists predicted in September.

The euro rose yesterday as ECB President Mario Draghi damped speculation of negative deposit rates after the central bank unexpectedly cut them to a record low 0.25 percent on Nov. 7.

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