BLBG:Euro Strengthens After German Sentiment Improves; Yen Weakens
The euro strengthened the most in a week against the dollar after an index of German business confidence improved more in February than economists forecast.
The shared currency rose for the first time in four days against the yen as the IFO Institute data added to optimism the region’s largest economy is gaining momentum. The yen fell as demand for safer assets declined and before Japan’s Prime Minister Shinzo Abe meets U.S. President Barack Obama today in Washington. Australian dollar rose the most in six weeks versus the U.S. currency after central bank Governor Glenn Stevens said the bar for intervention was high.
“Given the more positive sentiment over the past couple of months in financial markets, the stronger German IFO today is perhaps not that surprising,” said Kiran Kowshik, a foreign- exchange strategist at BNP Paribas SA in London. “We established a buy euro recommendation yesterday.”
The euro gained 0.1 percent to $1.3208 at 10:49 a.m. London time after rising as much as 0.4 percent, the biggest gain since Feb. 13. The common currency strengthened 0.3 percent to 123.20 yen after falling 2.1 percent in the previous three days. The yen dropped 0.2 percent to 93.28 per dollar.
The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, climbed to 107.4 from 104.3 in January. That’s the fourth straight gain. Economists predicted an increase to 104.9, according to the median of 38 forecasts in a Bloomberg News survey.
BNP Paribas entered a buy euro recommendation at $1.3180, Kowshik said, with a target of $1.38. Investors should close the position if the currency weakens to $1.2980, he said.
Lower Forecasts
The euro trimmed gains after a European Commission report predicted the region’s economy will shrink for a second year in 2013. Gross domestic product will fall 0.3 percent in 2012, compared with a November prediction of 0.1 percent growth, the commission said.
The yen weakened against all 16 of its major counterparts amid speculation Obama will refrain from criticizing Abe’s attempts to increase stimulus, which have weakened the currency.
“The market will be watching how supportive the U.S. will be for Abe’s economic policies,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “If they see approval for easier monetary policy, the yen can weaken further.”
Today’s meeting between Abe and Obama follows a Group of 20 summit in Moscow that ended Feb. 16 with finance ministers and central bankers signaling support for Japanese stimulus as long as Abe’s ministers cease public advocation of a weaker currency.
Stocks Gain
The yen also declined today as stocks rose, boosting demand for higher-yielding currencies. The Stoxx Europe 600 (SXXP) Index advanced 0.8 percent and futures on the Standard & Poor’s 500 Index gained 0.4 percent.
The yen has tumbled 13 percent in the past three months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.5 percent, and the euro rose 3.4 percent.
The so-called Aussie rallied against all of its 16 major peers after Stevens said he’d need to be confident the currency was “seriously overvalued” before considering intervention to weaken it.
“Stevens’s comments are very firmly focused on what a strong currency means for inflation, rather than including any threat of action,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The tone of his prepared comments indicates no great urgency to cut rates.”
The Australian dollar rose 0.7 percent to $1.0320 after climbing as much as 0.8 percent, the biggest gain since Jan. 10.
To contact the reporters on this story: Kevin Buckland in London at kbuckland1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
