Dollar Trades Near One-Month High on Consumer Confidence Gain

By Ye Xie and Candice Zachariahs

July 30 (Bloomberg) -- The dollar traded near a one-month high versus the euro as an increase in U.S. consumer confidence reduced concern the economy may fall into a recession.

The currency also strengthened yesterday as oil dropped to a 12-week low and Merrill Lynch & Co.'s plan to sell $8.5 billion of stock and liquidate bonds raised speculation that Wall Street may have seen the worst of the credit crisis.

``Most of the downside U.S. growth risk has been discounted,'' said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. ``A gradual dollar appreciation is under way.''

The dollar traded at $1.5588 per euro at 6:01 a.m. in Tokyo, after rising 1 percent yesterday and touching $1.5554, the strongest level since June 25. The U.S. currency was at 108.11 yen after increasing 0.6 percent and reaching 108.29, the highest since June 25. The euro traded at 168.53 yen, following a 0.4 percent decline.

The euro may decline to $1.53 should it stay below $1.5575, breaking through a trend line that tracks the currency's rally starting in August 2007, wrote Kevin Edgeley, a technical analyst at Goldman Sachs Group Inc. in London, in a research note yesterday.

``Sentiment is turning more bearish'' on the euro after it failed to hold at the 100-day moving average of $1.5665, wrote Edgeley, who uses charts to predict currency moves.

Traders reduced bets the European Central Bank will raise its 4.25 percent main refinancing rate this year. The implied yield on the December Euribor futures contract dropped to 5.08 percent yesterday, from 5.12 percent on July 28.

Crude Oil Falls

Crude oil for September delivery decreased as much as 3.5 percent to $120.42 a barrel yesterday. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

``Lower oil prices remove some ECB concerns about higher inflation,'' said Bank of America's Sinche.

Inflation in the countries that use the euro accelerated to 4.1 percent this month, following an increase to 4 percent in June, according to the median forecast of 36 economists surveyed by Bloomberg News. The report from the European Union's statistics office is due tomorrow.

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, reached 73.428 yesterday, the highest since June 24.

Merrill Bond Sale

Merrill said in a statement July 28 that it had agreed to sell $30.6 billion of collateralized debt obligations, the mortgage-related bonds that have caused most of the firm's losses, for $6.7 billion. Temasek Holdings Pte., the Singapore- owned fund that became Merrill's biggest investor by acquiring shares in December, agreed to buy $3.4 billion of new stock.

``They're selling the assets, not just marking them down, so there will be no more volatility to their earnings going forward,'' said Adam Fazio, a currency strategist at CIBC World Markets Inc. in New York. ``Some people are putting a positive spin in the longer term for the banking industry.''

The New York-based Conference Board reported yesterday that its U.S. consumer confidence index rose this month to 51.9, higher than economists forecast, from a revised June reading of 51, the lowest since February 1992.

U.S. companies cut 60,000 jobs in July, following a reduction of 79,000, according to the median forecast of 29 economists surveyed by Bloomberg News. The report from ADP Employer Services is due at 8:15 a.m. New York time.

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast of economists in a separate survey. The report from the Labor Department is scheduled to be released Aug. 1.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Candice Zachariahs in New York at Czachariahs1@bloomberg.net.