The euro strengthened toward an eight-month high versus the dollar after French consumer confidence unexpectedly improved this month, underpinning demand for the region’s assets. Europe’s shared currency gained for a second day against the yen after Italian business confidence also increased. The yen weakened against all 16 of its major counterparts before a report tomorrow forecast to show Japanese consumer prices fell, fueling speculation Prime Minister Shinzo Abe will push the central bank to add stimulus. The Dollar Index declined as U.S. lawmakers return to Washington to try to craft a deal to avert the so-called fiscal cliff. “We aren’t in as desperate times as we were in the middle of this year and there’s some upward pressure on the euro,� said Simon Smith, chief economist at FxPro Group Ltd. in London. “With the yen being under pressure, the euro is benefiting. The market is looking with a certain degree of caution at the yen because the politicians are talking tough.� The euro appreciated 0.3 percent to $1.3264 at 6:41 a.m. New York time after rising to $1.3308 on Dec. 19, the highest since April 3. The common currency gained 0.5 percent to 113.77 yen after climbing to 113.84 yen, the strongest since Aug. 4, 2011. The yen fell 0.2 percent to 85.77 per dollar. An index of French household sentiment rose to 86 in December from 84 in November, the first monthly increase since May, the national statistics office Insee said. Economists forecast an unchanged reading of 84, according to a Bloomberg survey. A gauge of Italian business climbed to 88.9 from 88.5, according to Rome-based national statistics institute Istat. Euro’s Advance The euro has appreciated 2.9 percent in the past three months, the second best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swiss franc. The yen tumbled 11 percent and the dollar dropped 0.1 percent. The yen slumped more than 0.7 percent against the Norwegian krone and the South African rand today after Abe was approved as prime minister yesterday by parliament. His Liberal Democratic party won a landslide victory in lower house elections on Dec. 16, pledging to weaken the currency. Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to a Bloomberg News survey before tomorrow’s report. The Bank of Japan (8301)’s inflation target is 1 percent. “The yen story will be an interesting one for 2013, as we see what the BOJ do,� said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “Clearly Abe has been massively pressuring them.� Relative Strength The yen’s 14-day relative strength index dropped to 19.7 against the dollar today and dropped to 20.2 versus the euro. A reading below 30 indicates an asset’s decline has been too rapid it is poised to rise. Further depreciation of the yen versus the dollar is one of the surest bets going into the new year, according to John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC. The yen will weaken to 90 per dollar before a resumption in risk aversion prompts investors to return to traditional refuge currencies, he said in a Bloomberg interview published today. The Dollar Index dropped for a second day as President Barack Obama and U.S. Congress return to Washington to resume negotiations over the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to take effect next month. Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty� around tax and spending policies, according to a letter sent to congressional leaders yesterday. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.2 percent to 79.43. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net. To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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