BLBG: Dollar Gains Versus Euro on Speculation of Faster U.S. Recovery
By Ben Levisohn and Anchalee Worrachate
Feb. 23 (Bloomberg) -- The dollar rose against the euro, reversing earlier losses, after a report showing an unexpected decline in German business confidence spurred speculation the U.S. economy will recover faster than Europe’s.
The greenback gained against 13 of its 16 most-active counterparts before reports this week forecast to show U.S. homes sales and durable goods orders increased. The euro dropped after the Munich-based Ifo institute said business confidence declined in February for the first time in 11 months. The franc slid the most in two weeks versus the euro amid speculation that the Swiss National Bank sold the currency to curb its gains.
“The Ifo report was the latest in a whole series of economic disappointments in Europe,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “The wider the gap in economic performance between the U.S. and Europe, the stronger the dollar will be versus euro.”
The dollar appreciated 0.2 percent to $1.3565 per euro at 8:40 a.m. in New York from $1.3596 in New York yesterday. It reached $1.3444 on Feb. 19, the highest since May 18. The U.S. currency fetched 90.67 yen from 91.14. The euro declined to 123.13 yen from 123.92 yen.
Sales of new U.S. homes climbed 3.1 percent in January after dropping 7.6 percent in December, according to a Bloomberg survey before tomorrow’s Commerce Department report. Bookings for durable goods climbed 1.5 percent last month, a separate Bloomberg survey showed before the Commerce Department reports the figure on Feb. 25.
Damp Speculation
The dollar’s gain was tempered as Fed officials sought to damp speculation that last week’s discount rate increase heralds the start of tighter monetary policy. Fed Bank of San Francisco President Janet Yellen said yesterday the U.S. economy still needs low interest rates to gain strength. The target rate is currently at a record low of zero to 0.25 percent.
The euro fell versus the dollar after Ifo’s business climate index, based on a survey of 7,000 executives, fell to 95.2 from 95.8 in January. Economists expected a gain to 96.1, according to the median of a Bloomberg News survey. The index reached a 26-year low of 82.2 in March last year.
“It’s been the case recently that U.S. data surprised on the upside compared to that in the euro zone,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The weaker-than-expected confidence data out of Germany doesn’t bode well for the euro.”
German Chancellor Angela Merkel criticized market speculation against the Europe’s common currency, saying that financial institutions bailed out with public funds are exploiting the budget crisis in Greece and elsewhere.
‘Object of Speculation’
Merkel, in a speech in Hamburg, said a solution to the Greek crisis is the “core element” in re-establishing confidence in the single currency, and urged euro states to adhere to budget rules as soon as possible. She hit out at currency speculators, who she said are taking advantage of debt piled up by euro-area governments to combat the financial crisis.
“The debt that had to be accumulated, when it’s going badly, is now becoming the object of speculation by precisely those institutions that we saved a year-and-a-half ago,” Merkel said in her speech late yesterday. “That’s very difficult to explain to people in a democracy who should trust us.”
The Swiss franc weakened the most in more than two weeks against the euro on speculation the central bank sold the currency to safeguard the economic recovery.
The franc dropped as much as 0.4 percent versus the euro, the biggest decline since Feb. 5, snapping a four-day advance. It depreciated 0.3 percent in the six minutes between 6:06 a.m. Zurich time and 6:12 a.m.
‘Strongly Suspects’
“The market strongly suspects that there’s an intervention in the franc market,” said Mansoor Mohi-Uddin, chief currency strategist at UBS AG in Singapore. “The SNB might have felt uncomfortable with the franc at the recent levels.”
Swiss National Bank President Philip Hildebrand said Jan. 22 policy makers will seek to prevent “an excessive appreciation” of the currency to prevent deflation. The bank’s spokesman, Nicolas Haymoz, declined to comment today on whether the central bank sold its currency to curb the gains.
