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View Full Version : Euro Trades Near Two-Month High on Prospect German Inflation Will Quicken



shela1153
01-27-2011, 06:19 AM
http://www.bloomberg.com/news/2011-01-26/dollar-is-near-two-month-low-as-fed-maintains-easing-cites-u-s-weakness.html

The euro was near a two-month high versus the dollar before a German report that’s forecast to show consumer prices rose at the fastest pace in two years, adding to signs the recovery in Europe’s largest economy is picking up.

The single currency headed for a monthly gain against 14 of its 16 major counterparts on speculation that European Central Bank officials will reiterate today their concern that inflation will quicken. The Australian dollar fell after Prime Minister Julia Gillard announced a one-off levy on most income earners to fund rebuilding after recent floods, damping demand for the South Pacific nation’s assets.

“The ECB seems worried over inflation pressures, which is causing speculation on rates rising this year,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “This is likely positive for the euro.”

The euro traded at $1.3707 at 6:49 a.m. in London from $1.3713 in New York yesterday when it touched $1.3722, the highest level since Nov. 22. It bought 112.64 yen from 112.68 yen. The dollar was at 82.18 yen from 82.17 yen yesterday, when it reached 81.98 yen, the weakest since Jan. 19.

Australia’s currency dropped 0.4 percent to 99.56 U.S. cents, and declined 0.4 percent to 81.81 yen.

Europe’s currency rose 1.8 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which track a basket of 10 developed-country currencies. The dollar dropped 2.7 percent and the yen fell 1.8 percent.

Germany, Euro-Area

Germany’s inflation rate, calculated using a harmonized European method, increased to 2.2 percent in January, the highest since October 2008, according to a Bloomberg News survey of economists before the data is released today. A euro-region index of executive and consumer sentiment increased to 106.7 in January from 106.2 in the previous month, a separate Bloomberg survey showed before the European Commission’s report today.

ECB Executive Board Member Lorenzo Bini Smaghi speaks in Bologna, Italy and Executive Board Member Jose Manuel Gonzalez- Paramo speaks in Madrid today.

“We will do what is necessary,” ECB President Jean-Claude Trichet said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland, yesterday. “It is not by chance that we have delivered price stability. Our credibility it based on that doctrine.”

Australia’s Dollar

The Australian dollar weakened against all of its major peers after Gillard said the nation’s worst flooding will cost an estimated A$5.6 billion ($5.58 billion) and shave around 0.5 percentage point off gross domestic product growth.

The tax will raise about A$1.8 billion. A levy of 0.5 percent will be applied on income between A$50,001 and A$100,000 and a levy of 1 percent will be applied on taxable income above A$100,000, Gillard said.

“Interest-rate expectations have certainly moderated, keeping a lid on the Aussie,” said Thomas Averill, a Sydney- based director at Rochford Capital, a foreign exchange and rates risk management firm. “We’ve seen some benign producer price and consumer price data out this week and that coupled with some fiscal tightening coming from the government does create less reason for the Reserve Bank to move on interest rates.”

Prices paid to Australian producers rose 0.1 percent in the fourth quarter from the prior period, and consumer prices advanced 0.4 percent last quarter, government data showed this week. Both figures were less than economists forecast.

Fed’s Statement

The dollar traded near a one-week low against the yen after the Federal Open Market Committee said an expansion in the world’s largest economy is “continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions.”

Inflation is too low, and unemployment too high, to be consistent in the long run with policy makers’ congressional mandates for stable prices and full employment, the Federal Reserve said after its two-day meeting yesterday, repeating progress toward its objectives has been “disappointingly slow.” The Fed left its target lending rate unchanged at zero to 0.25 percent, where it has been since December 2008.

“While the U.S. economy is recovering, we don’t expect it will be fast enough to produce much of a dent in the high unemployment rate,” said John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd. “The risk is that the Fed keeps rates steady all through 2011, providing a headwind for the U.S. dollar.”

Gross domestic product in the U.S. rose at a 3.5 percent annual pace in the fourth quarter, up from a 2.6 percent rate in the previous three months, according to a Bloomberg News survey of economists before a Commerce Department report tomorrow.

The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners including the yen, declined 0.1 percent to 77.739.