The euro traded near a two-month high against the dollar on growing optimism the currency region will overcome its debt crisis as economic recovery takes hold and German inflation accelerates. The dollar declined toward a three-week low against the yen as President Barack Obama called for a freeze on non-security discretionary spending, increasing the likelihood that the Federal Reserve will keep its main interest rate close to zero for longer. The pound was near a two-week low versus the dollar before a U.K. report forecast to show home-loan approvals fell for a seventh month. Norway’s krone gained for a third-straight day before a monetary policy decision at which the country’s central bank is forecast to leave interest rates unchanged. Euro area “data remain very robust, you’ve got inflation pressures rising and you’ve got a central bank which is probably one of the most hawkish globally,” said Paul Robson, a senior foreign exchange strategist at Royal Bank of Scotland Plc in London. “People are embracing the idea that there is increased chance of a successful outcome in the periphery and that is playing positive for the euro.” The euro traded at $1.3695 as of 9:13 a.m. in London from $1.3681 in New York yesterday when it climbed to $1.3704, the highest since Nov. 22. The single currency was at 112.42 yen from 112.54. The dollar fell to 82.10 yen from 82.25, after dropping to 81.85 on Jan. 19, the weakest since Jan. 1. German Inflation German import-price inflation accelerated to 12 percent in December, the highest rate since October 1981, the Federal Statistics Office in Wiesbaden said today. Economists expected the rate to rise to 10.8 percent, according to the median of 12 estimates in a Bloomberg News survey. In the month, prices increased 2.3 percent, almost double the 1.2 percent forecast by economists. European Union leaders are developing a solution to stem the crisis that has roiled the euro-region. A 5 billion euro auction yesterday by the European Financial Stability Fund that is financing part of the bailout of Ireland drew 44.5 billion euros in orders as the Japanese government snapped up more than 20 percent of the issue. Asian investors bought about 38 percent and government agencies 43 percent, according to two people familiar with the transaction. The Dollar Index fell for a fourth day as Obama used his State of the Union speech yesterday to propose a partial spending freeze that would save $400 billion from the budget in the next decade and an additional $78 billion of defense cuts. “Long-term U.S. yields may fall further if President Obama actually proposes a freeze,” Tohru Sasaki, head of Japan rates and foreign-exchange research at JPMorgan Chase & Co. in Tokyo, said before Obama’s comments. “This could lead to more dollar weakness.” The Dollar Index, a gauge of the greenback against the currencies of six of its trading partners, declined 0.2 percent to 77.858. The pound was little changed at $1.5818 and 86.58 pence per euro. 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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