The euro surged against the dollar and strengthened versus the yen after data showed euro-region inflation unexpectedly accelerated in March, bolstering the case for tighter monetary policy. The U.S. dollar weakened against 15 of its 16 major counterparts. Australia’s dollar climbed to a record after the nation’s retail sales grew more than estimated. The euro has gained 6.2 percent against the greenback this year, even amid concern that Portugal will need a financial rescue and Ireland’s banks may need more capital. European Central Bank President Jean-Claude Trichet signaled on March 3 that policy makers may raise interest rates at their April 7 meeting. “The consumer price data certainly helps the euro,” said Jeremy Hale, head of macroeconomic strategy at Citigroup Inc. in London. “The euro-region issues are taking a back seat. Inflation, and the fact that the ECB is expected to tighten, is taking a front seat.” The euro climbed 0.6 percent against the dollar to $1.4214 as of 6:36 a.m. in New York. It appreciated 0.6 percent to 117.78 yen and reached 117.90 yen, the highest since May last year. Japan’s currency was little changed at 82.85 per dollar. It earlier depreciated to 83.21, the weakest since March 11, when Japan was struck by its biggest recorded earthquake. German Unemployment Inflation in the 17-nation euro region quickened to 2.6 percent in March from 2.4 percent in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2 percent limit for a fourth month. Economists had forecast inflation to hold steady. Germany’s unemployment rate declined to 7.1 percent in March, the Nuremberg-based Federal Labor Agency said today, as instability in the Middle East and the crisis in Japan failed to deter companies from hiring. The implied yield on the three-month Euribor contract expiring in December rose three basis points to 2.09 percent today, as investors added to bets that rates will rise. The ECB will increase its main refinancing rate by 25 basis points to 1.25 percent on April 7, a Bloomberg survey of economists shows. The rate will end this year at 1.75 percent, the surveys show. By contrast, the U.S. Federal Reserve is forecast to keep its target rate on hold at 0.25 percent for the whole year, and has a program to buy up to $600 billion Treasury securities through June to spur growth. Rate Differential “The rate differential is being borne out more by the fact that the Fed is still printing money,” said Derek Halpenny, European head of currency research at Bank of Tokyo in London, referring to the Fed’s bond-buying program. “That tells you how far away we are from a shift in yields, and that is what’s dictating the dollar selling at the moment.” The Dollar Index, which InterContinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.5 percent to 75.786. It approached a 15-month low of 75.249 reached on March 22 and headed for a 4.1 percent decline this quarter. The euro is poised for an 8.5 percent gain versus the yen for the quarter ending today, the best performance since December 2000. “The markets are expecting rate hikes from the European Central Bank every quarter,” said Yuji Saito, director of foreign exchange at Credit Agricole Corporate and Investment Bank in Tokyo. “The euro is likely to be strong.” ECB council member Guy Quaden, whose term ends today, called for a “cautious” tightening next month. “A cautious increase of the official interest rates from that very low level cannot hamper the economic recovery,” Quaden, who has headed the Belgian central bank for 12 years, said in an Bloomberg News interview in Brussels yesterday. Aussie Gain Ireland is due to publish the results of bank stress tests at 4:30 p.m. in Dublin. The Australian dollar headed for a third quarterly gain after a government report showed retail sales increased in February by more than economists forecast. Sales rose 0.5 percent last month, the Bureau of Statistics said today, surpassing the 0.4 percent increase projected by economists. The number of permits granted to build or renovate houses and apartments dropped 7.4 percent, while economists had estimated a 4 percent increase. “We expect households to reverse recent outsized precautionary saving as the year unfolds and heading into 2012,” Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore, wrote in a report. “The strong data pushed the Australian dollar to another fresh post-float high.” The Aussie was 0.2 percent stronger at $1.0345, after rising to $1.0351, the strongest level since the currency was freely floated in 1983. To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net. To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.

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