The euro rose against the dollar, reaching the strongest level in almost two months, as a report showed business confidence in Germany surpassed analysts’ forecasts and rose to a record high in January. The common currency gained versus 15 of its 16 most-active counterparts amid optimism that European policy makers will find a long-term solution to deal with the sovereign-debt crisis. Goldman Sachs Group Inc. said the European Union will prevent any potential “liquidity constraint’” in Spain from turning into a region-wide financial crisis. The Australian and New Zealand dollars dropped as a decline in Asian stocks sapped demand for higher-yielding currencies. “Recent data suggested the economic performance in Europe has been okay, and probably somewhat better than people expected,” said Adrian Schmidt, a currency strategist at Lloyds TSB Bank Plc in London. “There has been a lot of discussion about potential solutions to the crisis.” The euro rose 0.4 percent to $1.3527 as of 10:26 a.m. in London, after reaching $1.3566, the most since Nov. 23. It gained 0.3 percent to 112.18 yen. Against the pound, it appreciated 0.4 percent to 85.07 pence. The dollar fell 0.2 percent to 82.92 yen. The MSCI Asia Pacific Index of shares fell 1.2 percent following a 1.9 percent drop yesterday. The Stoxx Europe Index gained 0.5 percent, snapping a two-day decline. The Ifo institute’s business climate index, based on a survey of 7,000 executives, was 110.3 in January, up from the 109.9 median of 41 forecasts in a Bloomberg News survey. That’s the highest since records for a reunified Germany began in 1991. EU Rescue Fund European Union finance ministers are discussing whether the euro zone rescue fund should be empowered to provide credit to Greece to buy its bonds from secondary markets at a discounted price, the Irish Times reported, citing a person it didn’t identify. The proposal was raised by the EU’s economic and financial committee on which euro zone finance officials sit, the Irish Times said, citing the person. Spain does not have an underlying solvency problem and the European Union will stop any potential liquidity issue in the country from degenerating into another financial crisis, Erik Nielsen, Goldman’s chief European economist, said in a note. “We do not rule out such a scenario, and remain confident that European policy makers will step in decisively to prevent any potential liquidity constraint that Spain may face from turning into a systemic event,” he said. Further gains in the euro may be limited as Fitch Ratings warned there’s a continuing risk that euro-region nations will have their credit ratings downgraded. Ratings Warning While the risk of a break-up of the euro area remains “small,” there will be periodic episodes of market turmoil in the region until fiscal consolidation is secured and the economic recovery is broad-based, David Riley, head of sovereign ratings at Fitch, said in the slides of a presentation delivered today in London. The dollar fell against the euro and the yen on speculation Federal Reserve Chairman Ben. S. Bernanke will refrain from raising interest rates next week. The Federal Open Market Committee will keep interest rates unchanged at its meeting on Jan. 25-26, according to all 92 economists in a Bloomberg survey. The Fed has kept its benchmark at zero to 0.25 percent since December 2008. The labor market may take five years to recover, Bernanke said Jan. 7. The unemployment rate is at 9.4 percent. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, fell 0.3 percent to 78.579. Kiwi Declines New Zealand’s dollar dropped for a fourth day against the greenback after the retail sales report adding to speculation a faltering recovery will deter the Reserve Bank from raising interest rates. Retail sales excluding automobiles and fuel fell 0.2 percent in November, compared with a median forecast for a 0.5 percent increase, the statistics bureau said. A report yesterday showed inflation accelerated less than economists forecast in the fourth quarter. “I don’t see any positive news from a rates point of view or a foreign-exchange point of view” in New Zealand, said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The combination of consumer prices yesterday and softer core retail sales today suggest that the RBNZ is not going to be feeling any pressure to kick the rate hike campaign back into gear.” The so-called kiwi dropped 0.3 percent to 75.51 U.S. cents after declining to 75.26 cents, the weakest since Dec. 28. The Australian dollar fell 0.1 percent to 98.57 U.S. cents. To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net. To contact the editor responsible for this story: Keith Campbell at k.campbell@bloomberg.net.

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