By Bo Nielsen and Yasuhiko Seki Dec. 15 (Bloomberg) -- The dollar rose to a more than two- month high against the euro amid speculation improving economic data in the U.S. will spur the Federal Reserve to signal an exit from easing policies intended to combat the recession. The U.S. currency climbed against 14 of its 16 major counterparts after futures yesterday indicated a 48 percent chance that the Fed will raise its key rate by at least a quarter-percentage point from near zero by June. The Australian dollar fell after the central bank said its decision to raise borrowing costs two weeks ago for a third-straight month gave policy makers increased “flexibility” at future meetings. “Good data is pushing markets to revise expectations about the Fed and an early exit and that’s giving the dollar a boost,” said David Deddouche, a foreign-exchange strategist for Societe Generale SA in Paris. “It won’t last through the Fed’s meeting tomorrow because Ben Bernanke won’t validate the fear of an early exit.” The dollar traded at $1.4549 per euro as of 9:45 a.m. in London, from $1.4656 yesterday in New York, and appreciated to $1.4533, the strongest level since Oct. 2. The greenback advanced to 89.23 yen, from 88.62. The yen was at 129.78 per euro, from 129.90. Australia’s currency weakened to 90.73 U.S. cents, from 91.67 cents. ‘Dollar Interest’ The dollar’s gains accelerated in thin markets after it broke through $1.4630, a level where investors placed orders to sell the euro to protect gains, traders said. The greenback will meet so-called resistance at about $1.4481, the Oct. 2 low, where traders will seek to protect the currency from triggering more stop orders, said John Hydeskov, a foreign-exchange analyst with Danske bank A/S in Copenhagen. “I’m hearing a lot of interest to buy the dollar,” said Stephen Bellamy, a senior foreign-exchange trader at Saxo Bank A/S in Copenhagen. “But I’m skeptical about the chances of breaking any major levels to the downside going into year-end.” U.S. industrial output rose 0.5 percent in November following a 0.1 percent gain the previous month, according to a Bloomberg survey before the Federal Reserve report today. In the same month, U.S. builders broke ground on 575,000 houses at an annual pace, up 8.7 percent, according to a separate survey ahead of tomorrow’s data. The Federal Open Market Committee will announce its decision on interest rates tomorrow at the end of a two-day meeting. Fed funds futures on the Chicago Board of Trade show a 100 percent chance the central bank will refrain from raising borrowing costs at that time. ‘Extended Period’ “They will need to see a lot more, better numbers consistently, not just for one or two months, before they would start to genuinely be talking more hawkish,” David Mann, senior strategist at Standard Chartered Plc in Hong Kong, said in an interview with Bloomberg Television. “In the absence of that, I think the markets may be disappointed if they’re looking for hints of hikes coming soon.” Fed officials pledged at their Nov. 4 meeting to keep rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline. The yield premium of a benchmark two-year German government note compared with its U.S. equivalent fell to 39 basis points, or 0.39 percentage point, from 51 points a week ago. The Australian dollar declined as traders lowered to 66 percent from 80 percent yesterday the possibility of a rate increase when the central bank meets next on Feb. 2, according to a Credit Suisse Group AG index. ‘Bigger Risk’ Minutes released today from the Reserve Bank of Australia’s December meeting “suggest that they could consider a pause at the following meeting,” said Richard Grace, chief currency strategist in Sydney at Commonwealth Bank of Australia. “The bigger risk for the Aussie is that the Fed’s statement is slightly more upbeat and therefore the U.S. dollar strengthens as market participants bring forward the timing of a rate rise in the U.S.” Grace said. The euro stayed lower after a report showed German investor confidence declined for a third month in December. The ZEW Center for European Economic Research’s index of investor and analyst expectations, which aims to predict developments six months ahead, slipped to 50.4 from 51.1 in November. Economists expected a drop to 50, according to the median of 33 forecasts in a Bloomberg News survey. Euro Selling “A weak headline figure may trigger selling of the euro, combined with lingering concern over the health of sovereigns in the region,” said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo. Spain had the outlook on its AA+ debt rating cut to “negative” from “stable” by Standard & Poor’s last week. Greece’s credit was reduced one step to BBB+ by Fitch Ratings, and Portugal’s outlook was revised to “negative” from “stable” by S&P. The yen weakened against eight of its 16 major counterparts as easing concern about default in Dubai curbed demand for Japan’s currency as a refuge. Abu Dhabi yesterday pledged $10 billion in aid to Dubai. “Underlying risk appetite remains intact as credit fears wane and the economy looks to be on the mend,” said Minoru Shioiri, chief manager of foreign-exchange trading at Mitsubishi UFJ Securities Co. in Tokyo. “Money will continue to favor higher-yielding currencies over cheaper ones.” To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Yasuhiko Seki in Tokyo at yseki5@bloomberg.net

Source