BLBG: Euro Rises to Near Seven-Week High as Industry Decline Slows
By Gavin Finch and Yasuhiko Seki
July 24 (Bloomberg) -- The euro advanced to near a seven- week high against the dollar after reports showed the contraction in European manufacturing and services slowed more than forecast and German business confidence rose.
The 16-nation currency headed for a second weekly advance versus the dollar and yen as stocks extended a global rally, encouraging an appetite for higher-yielding assets. Two European Central Bank policy makers, Ewald Nowotny and Athanasios Orphanides, said the global economic outlook improved.
“Incoming data surprises are finally coming in on the upside,” said Michael Rottmann, head of fixed-income research in Munich at UniCredit Markets & Investment Banking. “This will surely mean that we’ll see a further break higher in the euro- dollar exchange rate.”
The euro climbed 0.6 percent to $1.4221 at 8:25 a.m. in New York, from $1.4143 yesterday, extending its advance this week to 0.9 percent. It touched $1.4291 yesterday, the highest level since June 3. Europe’s currency appreciated 0.5 percent to 134.96 yen from 134.30, increasing 1.6 percent over the past five days. The dollar dropped 0.1 percent to 94.81 yen from 94.92. The euro may rise to about $1.43 today, Rottmann said.
Europe’s currency advanced versus the dollar and yen as Markit Economics said a composite index of the region’s manufacturing and services industries increased in July more than forecast to 46.8, representing the slowest pace of contraction in almost a year. A reading below 50 indicates a decline. The Ifo institute in Munich said its German business climate index increased to 87.3 this month, a nine-month high.
Outlook ‘Brightened’
The global economic outlook “brightened” in recent weeks “for the first time in a long time,” said Nowotny, an ECB Governing Council member, said in an e-mailed statement.
Recent positive signs in the global economy point to a gradual recovery next year for the euro area, said Orphanides, an ECB council member, in e-mailed text of a speech in Nicosia.
The pound dropped against most of the 16 most-traded currencies tracked by Bloomberg, decreasing 0.3 percent to $1.6427 after a government report showed Britain’s economy shrank in the second quarter more than twice as much as economists predicted.
Gross domestic product contracted 0.8 percent from the first quarter, the Office for National Statistics said today in London. The median forecast of 32 economists surveyed by Bloomberg News was for a 0.3 percent decrease.
“We expect the pound to be sold following the U.K. growth data,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London.
BOE ‘Watching’
The Bank of England may suspend its bond-purchase program and shift to a “watching” stance next month if new quarterly growth and inflation forecasts indicate a recovery, Andrew Sentance, a BOE policy maker, said yesterday in an interview.
Confidence among U.S. consumers probably fell in July for the first time in five months as mounting unemployment and depressed wages shook households. The Reuters/University of Michigan final index of consumer sentiment dropped to 65, the lowest level since March, from 70.8 in June, according to the median forecast of 57 economists surveyed by Bloomberg.
The Australian dollar climbed 0.8 percent to 81.83 U.S. cents, and New Zealand’s dollar gained 0.7 percent to 65.81 cents. The MSCI World Index of shares climbed 0.3 percent.
The euro may rise to $1.4719, the strongest level since mid-December, should the currency advance above resistance at $1.4338, Bank of Tokyo-Mitsubishi UFJ Ltd. said.
Triangle Pattern
The European currency already broke above the descending trend line of a triangle pattern, strengthening beyond the 76.4 percent retracement of the slump from the Dec. 18 high to the March 4 low, said Masashi Hashimoto, Tokyo-based senior analyst at the unit of Japan’s largest banking group. The triangle is formed by the descending trend line, which connects the highs of June 3 and July 1, and by an ascending trend line, which connects the lows of June 16 and July 8, he said.
“Rising pressure will increase if the euro gains above the June 3 high of $1.4338,” Hashimoto said. “The currency has broken above the triangle. It has also gone through the 76.4 percent Fibonacci retracement level.”
To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net
