BLBG: Euro Climbs Against Dollar as Confidence Fuels Calls for Increase in Rates
The euro climbed to a four-month high against the dollar as a report showed European investor confidence rose to the highest level in 3 1/2 years, fueling bets the European Central Bank will raise interest rates.
The 17-nation currency climbed above $1.40 for a second day. An index measuring sentiment in the euro region rose to 17.1 from 16.7 in February, Limburg, Germany-based Sentix research institute said today. ECB President Jean-Claude Trichet may reiterate that a rate increase may come as early as April when he speaks in Basel today. New Zealand’s dollar fell against most of its major peers after Prime Minister John Key said lower borrowing costs would be helpful.
“The yield difference versus the dollar shows there’s further upside to come after Trichet’s comments last week,” said Chris Walker, a currency strategist at UBS AG in London. “Trichet is unlikely to downplay the fears about a hike” so there’s “some upside risk if he does give any hints.”
The euro bought $1.4020 as of 7:41 a.m. in New York, from $1.3987 on March 4, when it completed a 1.7 percent weekly advance. The common currency earlier traded as high as $1.4036, the strongest level since Nov. 8. It traded at 115.11 yen, from 115.13. The dollar fetched 82.10 yen, from 82.32 yen. The Dollar Index fell for a fourth day.
The euro gained last week after policy makers left the refinancing rate at 1 percent and Trichet said they may raise borrowing costs as early as their next meeting to contain inflation. The implied yield on the three-month Euribor contract expiring in December was at 2.16 percent today from 1.94 percent a week earlier, indicating investors are increasing wagers on higher interest rates.
Dollar Decline
Morgan Stanley increased its year-end target for the single currency to $1.45 from an earlier prediction of $1.24, Gabriel de Kock, a New York-based executive director, wrote in a research report published yesterday. The currency will decline to $1.34 by the end of December, according to the median of 44 strategists’ predictions compiled by Bloomberg News.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, including the euro and yen, slipped 0.3 percent to 76.20, after touching the weakest since Nov. 5.
New Zealand’s Treasury Department said costs from the Feb. 22 quake that wrecked the central business district of Christchurch may triple the estimated NZ$5 billion ($3.7 billion) bill from a temblor that hit the city in September. The expense will be shared between the government, insurers and businesses, Finance Minister Bill English said yesterday.
Greece Downgrade
The so-called kiwi bought 60.64 yen, its second day of declines, and was at 72.63 Australian cents, after reaching 72.57, its weakest level in 18 years against its Australian counterpart.
The common European currency’s gains may not last after Moody’s Investors Service cut Greece’s credit rating to B1 from Ba1, prompting concern investors will shift their focus to the region’s sovereign debt crisis. European Union leaders are due to meet this month and try and agree to a package of measures to contain the debt crisis that forced Greece and Ireland to seek financial aid last year.
“There’s a new focus on the sovereign debt crisis in the euro zone,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. The downgrade “is a bit of a wake-up call” after investors pushed the currency higher on expectations of higher interest rates, he said.
Long Euro Bets
Investors have become so bullish on the euro that past trading trends suggest they may start reversing those bets. The number of contracts that hedge funds and other large speculators hold at the Chicago Mercantile Exchange anticipating a gain in the single currency jumped to 51,308 as of March 4, according to the Washington-based Commodity Futures Trading Commission.
The last time so-called net longs exceeded 45,000 contracts was in October. The following month the euro weakened 6.9 percent against the dollar. They also topped the 45,000 mark a year earlier, just before the currency began about a six-month, 21 percent decline.
“People are well positioned for euro gains,” Christensen said. “There’s a risk for disappointment.”
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
