SFG: Euro Rises Against Dollar on German Confidence, ECB Rate View
May 24 (Bloomberg) -- The euro rose against the dollar for the first time in three days as German business confidence unexpectedly held near a record high in May, fueling bets that the European Central Bank will resume boosting interest rates even as the region's debt crisis intensifies.
New Zealand's dollar was the best performer against the greenback after a central bank report showed company executives in the South Pacific nation raised their inflation outlook to the highest level in almost three years. The dollar and yen fell versus most major peers after being the top performers yesterday as global equities slid.
"Ifo is a timely reminder that the most important economy in Europe is still motoring along," said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. "It's probably enough to confirm the ECB's own thinking that the core of Europe is still strong and they need to move away from some of that accommodative policy."
The euro strengthened 0.5 percent to $1.4117 at 10:10 a.m. in New York, from $1.4048 yesterday. The currency slipped below $1.40 yesterday for the first time since March 18. The euro rose 0.6 percent to 115.92 yen, from 115.20 yen. The dollar appreciated 0.2 percent to 82.13 yen, from 82.01.
"This can probably run to $1.42 to $1.4250 in the next 24 to 48 hours, and that wouldn't alter the fundamental story that ultimately the euro is going to trade lower," said Franulovich.
Business Climate
The Ifo institute in Munich said its German business climate index, based on a survey of 7,000 executives, stayed at 114.2 this month from last, after touching a record of 115.4 in February. The median forecast of 24 economists in a Bloomberg News survey was for a decrease to 113.7.
Stocks gained today, with the MSCI World Index rising 0.5 percent, and the Standard & Poor's 500 Index up 0.3 percent.
Euribor futures fell, with the implied yield on the December contract rising two basis points, or 0.02 percentage point, to 1.95 percent as investors increased bets the ECB will increase borrowing costs.
Policy makers lifted the main refinancing rate to 1.25 percent in April in the first increase since 2008. The Federal Reserve's target rate has been in a range of zero to 0.25 percent since 2008.
The euro has dropped almost 5 percent from its 2011 high of $1.4940, reached May 4. It weakened on concern Greece may have to restructure its debt as it struggles to contain its budget deficit and meet the conditions of a 110 billion-euro ($155 billion) rescue package.
Stronger Kiwi
New Zealand's dollar, nicknamed the kiwi, appreciated 0.9 percent to 79.71 U.S. cents after touching 80.16, the highest level since May 3. It gained 1 percent to 65.45 yen.
Inflation will average 3 percent in two years, according to the 75 business managers surveyed for the central bank. Expectations rose from 2.6 percent in the previous survey in February and are the highest since the third quarter of 2008, the central bank said on its website.
Sterling snapped two days of gains versus the euro after Moody's Investors Service placed U.K. financial institutions on review for downgrades and a central-bank official said further stimulus may be needed.
Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc are among 14 U.K. lenders whose debt Moody's is considering downgrading as withdrawal of government support may increase their credit risk. The outlook on Barclays Plc's senior debt and deposit ratings was changed to negative from stable, Moody's said in a statement today.
'Can't Be Certain'
"Until underlying growth resumes, we can't be certain that it will, of its own accord," Bank of England Markets Director Paul Fisher said in the text of a speech delivered in Edinburgh yesterday and released by the central bank in London today. "At the very least, that makes me pause to consider when policy should start to be normalized, or even whether further loosening might be justified."
The pound depreciated 0.2 percent to 87.28 pence per euro after two days of gains. It gained 0.4 percent to at 132.69 yen and rose 0.2 percent to $1.6160.
"Fisher saying the rate increases may be the wrong way to go, it's a situation that adds on to the growth worries," said Brian Kim, a currency strategist at UBS AG based in Stamford, Connecticut.
The dollar remained lower versus most peers as purchases of new houses rose in April to the highest level this year. Sales increased 7.3 percent to a 323,000 annual pace last month, Commerce Department data showed today in Washington. The median estimate in a Bloomberg News survey of economists called for sales at a 300,000 annual rate, unchanged from the prior month.
