The euro slipped from its highest level in 14 months versus the dollar as Portugal’s request for aid highlighted diverging economic prospects in the region as the European Central Bank prepares to raise interest rates. The currency of the 17-member bloc fell versus 12 of its 16 major peers after Prime Minister Jose Socrates said late yesterday that Portugal was seeking assistance from the European Union. The pound slipped versus the dollar as the Bank of England held rates steady. Japan’s yen rose against the dollar for the first time in 11 days, while Australia’s dollar climbed for a second day after data showed a lower unemployment rate. “Portugal has put some selling pressure on the euro because it just reminds the market that the fiscal issues in peripheral Europe are structural,” said Chris Walker, a foreign-exchange strategist at UBS AG in London. “You can keep propping up the debt market as long as you want but it’s not going to solve the structural issues. The ECB will still press ahead with normalizing rates in spite of the debt issues.” The euro fell 0.4 percent to $1.4280 at 12:05 p.m. in London. It reached $1.4349 yesterday, the strongest level since Jan. 19, 2010. The yen strengthened 0.9 percent to 121.40 per euro and appreciated to 0.6 percent to 85.28 per dollar. A rescue package for Portugal may be worth as much as 75 billion euros ($107 billion), two European officials with knowledge of the situation said. The ECB will probably increase its main rate by 25 basis points to 1.25 percent today, according to all 57 economists surveyed by Bloomberg. The announcement is at 1:45 p.m. German time, and a press conference will follow 45 minutes later. ‘Upside Potential’ “If they’re fairly hawkish, the euro should stay well supported,” Walker said. The pound fell 0.1 percent to $1.6313 after the Bank of England left its benchmark rate at 0.5 percent, as all 57 economists in a Bloomberg survey predicted. Europe’s currency has gained 6.8 percent versus the dollar this year as surging economic growth in Germany and accelerating inflation spurred investors to raise bets that rates would be increased to curb consumer prices, which reached a two-year high of 2.6 percent in March. “We definitely see further upside potential in the euro,” said Chris Scicluna, deputy head of economic research at Daiwa Capital Markets Europe in London. Daiwa Capital expects the ECB to raise rates to 1.75 percent by year-end, boosting the euro to $1.50, Scicluna said. Yen ‘Oversold’ Japan’s yen rose for the first time in 11 days versus the dollar as technical charts suggested its decline to the lowest in more than six months in the wake of international intervention was excessive. The currency was also lifted on bets Japanese exporters took advantage of the slide to purchase yen. The dollar’s 14-day relative strength index versus the yen was at 71.59, above the 70 threshold that suggests the greenback’s rally from a postwar low of 76.25 yen on March 17 has been too rapid. The yen has slumped 7.5 percent since its close on March 17, the day before the Group of Seven nations intervened to weaken the currency after the March 11 earthquake. “The yen looks oversold and exporters are apparently buying the currency to capitalize on its rapid weakness,” said Lee Wai Tuck, a foreign-exchange strategist at Forecast Pte in Singapore. “The near-term bias for the yen is likely to be positive.” The yen yesterday reached 122.61 per euro, the weakest level since May 5. It slid to 85.53 per dollar yesterday, the weakest since Sept. 21. Brazilian Tax The Japanese currency, which is often used to fund so- called carry trades, may extend today’s rebound after Brazil moved to limit overseas speculation in its financial markets. Brazil extended a tax on foreign-based loans to deter investors from borrowing in nations with low interest rates to purchase higher-yielding assets such as the real. The Brazilian currency reached a 2 1/2-year high this week, making the nation’s exports less competitive. The real gained as much as 0.5 percent yesterday to 1.6012 per dollar, the strongest intraday level since August 2008. Trading of the Brazilian currency hasn’t yet begun today. Starting today, banks and companies will have to pay a 6 percent tax when borrowing overseas for as long as two years, Finance Minister Guido Mantega said. Earlier this week, President Dilma Rousseff’s government broadened the tax on foreign loans to apply to credits of as long as one year. The benchmark interest rate is 11.75 percent in Brazil, compared with a central bank rate of 0.1 percent in Japan. Aussie Dollar “Risk-aversion buying of the yen and the Swiss franc may arise should Brazil’s measures lead to selling of emerging- market assets,” said Tsunemasa Tsukada, chief manager for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest financial group by market value. Australia’s dollar rose for a second day versus the greenback after statistics showed the unemployment rate fell to 4.9 percent in March from 5 percent the previous month. Employers added 37,800 workers in March from the previous month, the statistics bureau said. “The jobs number was very strong,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “This will only encourage the Aussie bulls. If you’re bearish the U.S. dollar and looking for an alternative, then the Aussie remains very attractive.” Australia’s dollar gained 0.5 percent to $1.0492, the strongest since it was freely floated in 1983. To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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