BLBG:Euro Strengthens Against Dollar and Yen After German Confidence Increases
The euro climbed against the dollar and the yen as a report showed German business confidence rose to the highest level in seven months in February amid progress in taming the region’s debt crisis.
The 17-nation currency increased to the most in more than two months versus dollar. The Munich-based Ifo institute said its business climate index climbed to 109.6 from 108.3 in January. That’s the highest reading since July. The Dollar Index fell before a report today that may show initial jobless claims stayed near a four-year low.
“The relative strength of Germany goes some way to explain the apparent resilience of the euro to the euro-zone crisis,” said Jane Foley, a senior currency strategist at Rabobank International in London. “On a three-month view, however, we continue to look for a potentially aggressive, but temporary, pullback in the euro on the risk that the crisis will again intensify.”
The euro strengthened 0.5 percent to $1.3315 at 10:37 a.m. London time, after reaching $1.3343, the most since Dec. 12. It advanced 0.3 percent to 106.65 yen and appreciated 0.2 percent to 84.69 British pence.
The euro stayed higher even as European Commission data forecast that Europe’s economy will shrink in 2012, with Italy and Spain facing sudden crunches as they battle to escape the debt crisis. The euro block will contract 0.3 percent, the commission said, abandoning a November forecast of 0.5 percent growth. The downgrade was mainly due to projected contractions of 1.3 percent in Italy and 1 percent in Spain.
Risk Reversals
Derivatives showed an improved demand for euros. The currency’s one-month options risk-reversal rate rose to minus 1.2950 percent, from minus 1.9625 percent at the start of the week. The change signals a relative decrease in the demand for put options, which grant traders the right to sell the euro versus the dollar.
Further euro gains may be limited as the Institute of International Finance said in its February Global Economic Monitor that an orderly resolution of the Greek debt crisis “remains a key challenge.” There is the “risk of a subsequent debt restructuring,” following the pending private-sector involvement deal, according to the IIF, which has been negotiating on behalf of private creditors in talks with Greece.
Dollar and Fed
Firings are also waning, Labor Department figures may show. Initial jobless claims rose last week to 355,000 after reaching a four-year low the prior week, according to the median forecast in the Bloomberg survey.
The U.S. currency has risen 4.9 percent in the past six months, the second-biggest advance, after the Australian dollar, among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.
Goldman Sachs Group Inc. recommended investors bet on the appreciation of Norway’s krone against the pound as rising oil prices boost demand for the Scandinavian nation’s currency and the central bank finds it difficult to stem gains.
“Norges Bank likely has little scope to use monetary policy to prevent further Norwegian krone strength,” according to a client note from analysts headed by Thomas Stolper, the London-based chief currency strategist. Investors should position for gains in the krone toward 8.60 per pound and exit the position on a one-day close above 9, Goldman Sachs said.
The krone traded at 8.8237 per U.K. pound, compared with 8.8532 yesterday. It strengthened 0.7 percent to 5.6140 per dollar and climbed 0.2 percent to 7.4735 per euro.
To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net
To contact the editor responsible for this s Daniel Tilles at dtilles@bloomberg.net
