MW: Euro rallies ons, flirts with May high vs. dollar
By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The euro’s surge continued Wednesday, matching its May high versus the dollar and hitting a 17-month high against the yen after the most closely watched gauge of German business confidence rose more than expected in December and equity markets continued a global Santa rally.
The euro EURUSD +0.4960% changed hands at $1.3273, up from $1.3227 on Tuesday. The shared currency traded as high as $1.3283, according to FactSet data, a level matching its May 1 high.
The euro EURJPY +0.8110% traded up 0.4% at 112.05 Japanese yen, after rising as high as ¥112.27, the loftiest level seen since July 2011.
“It has been another morning of positive sentiment and little news. [The euro/U.S. dollar pair] is heading for $1.34 with the help of a bounce in Ifo and dollar/yen is going to head through ¥85 on hope of policy action, regardless of the lack of actual policy moves,” said Kit Juckes, head of foreign exchange at Société Générale in London. “Bears and cynics are silent.”
The Munich-based Ifo Institute said its index tracking the business climate in Germany, the largest European economy, rose for second consecutive month, coming in at 102.4 versus a November reading of 101.4. Economists had forecast a 102.0 reading. See: German December Ifo business climate index rises .
Juckes, in a note to clients, highlighted data showing the euro zone’s October balance of payments data showed a €7.2 billion ($9.5 billion) current account surplus, with net portfolio capital inflows dwarfing direct-investment outflows.
‘Doomed to be strong’
“The euro is doomed to be strong if Europe runs policies which maintain current account surpluses, and does not offset them with lower bond yields. Only fear about the structure of the system, which makes investors shun the yields on offer in much of the euro zone, weakens the currency unless relative rates and yields are in favor of the dollar (or yen),” Juckes wrote.
As long as there is no sense of crisis in Europe, “we are likely to see upward pressure on the euro, against the dollar and even more so against the yen,” he said.
The ICE dollar index DXY -0.33% , which measures the U.S. unit's performance against a basket of six major rivals, slipped to 79.140 in recent action, compared with 79.349 in North American trade late Tuesday.
Against the Japanese currency USDJPY +0.32% , the dollar rose to ¥84.42 versus ¥84.20 late Tuesday.
Market expectations are building for the Bank of Japan to adopt a “far more dovish stance, perhaps as soon as Thursday’s policy decision,” said Gareth Berry, currency strategist at UBS. Monetary easing tends to undercut a currency.
Prime Minister-elect Shinzo Abe campaigned on pledges to revive Japan’s long-stagnant economy, putting increased pressure on the central bank to battle deflation.
Also Wednesday, the British pound GBPUSD +0.27% continued its recent rally, changing hands at $1.6302, up from $1.6251.
The Australian dollar AUDUSD -0.25% fetched $1.0512, down from $1.0529.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
