Euro Gains as German Exports Rise at Fastest Pace in Two Years

By Kosuke Goto and Stanley White

Aug. 7 (Bloomberg) -- The euro gained for the first time in three days against the dollar after a German government report showed exports rose at the fastest pace in almost two years.

The single currency climbed from a seven-week low before a European Central Bank meeting at which President Jean-Claude Trichet may highlight inflation risks. The yen rebounded from a seven-month low versus the dollar before a U.S. report today that may show pending home resales fell for a second month in June, signaling a slowdown in the world's biggest economy.

``German exports gave a surprise to the markets,'' said Masashi Kurabe, head of currency sales and trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in Hong Kong, a unit of Japan's largest publicly traded lender by assets. ``This is supportive for the euro.''

The euro traded at $1.5474 against the dollar at 8:05 a.m. in London, from $1.5408 late in New York yesterday, when it touched $1.5398, the weakest since June 16. The 15-nation currency traded at 169.35 yen from 169.16 yen. The euro may rise to $1.55 against the dollar and 170 yen today, Kurabe said.

The dollar slid to 109.44 yen from 109.79 yen yesterday, when it advanced to 109.88, the highest level since Jan. 10.

Trade Balance

Sales abroad of Europe's largest economy, adjusted for working days and seasonal changes, increased 4.2 percent from May, when they fell 3.4 percent, Germany's Federal Statistics Office in Wiesbaden said today. That's the biggest increase since September 2006. Economists expected a gain of 1.8 percent, the median of 12 forecasts in a Bloomberg News survey showed.

The Frankfurt-based ECB, which increased borrowing costs last month, publishes today's decision at 1:45 p.m. and Trichet holds a press conference 45 minutes later. Separately, the Bank of England will leave its key rate at 5 percent, another survey of economists shows. That decision is due at noon in London.

Trichet said on July 3 that he had ``no bias'' or ``pre- commitment'' after policy makers increased the main refinancing rate a quarter-percentage point.

The euro may decline to $1.5224 against the dollar in the next two weeks, said Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing charts traders use to predict price movements.

Support at $1.5224 is the single European currency's average price for the past 200 days. The euro is likely to decline as its weekly stochastic and moving average convergence/divergence charts are showing sell signals, Ng said.

Inflation Above Target

The inflation rate for the euro region accelerated to 4.1 percent in July, the fastest pace in more than 16 years and more than double the pace the ECB targets.

Traders pared bets the ECB will raise the main refinancing rate for a second time this year. The three-month Euribor contract for December yielded 5.035 percent today, down from 5.06 percent on Aug. 5.

The Dollar Index on the ICE futures exchange, which tracks the dollar against the currencies of six U.S. trading partners, was at 74.023 after touching 74.307 yesterday, the strongest since June 13.

A report from the National Association of Realtors today may show its index of U.S. pending home sales fell 1 percent in June, after a 4.7 percent drop the prior month, according to the survey median.

The Federal Reserve left borrowing costs unchanged on Aug. 5 at 2 percent, saying ``downside risks'' to growth remain, while inflation is a ``significant concern.''

Large Manufacturers

Japan's currency also strengthened against the dollar on speculation Japanese exporters took advantage of its recent weakness to repatriate overseas earnings at a more favorable rate than they initially assumed.

Large Japanese manufacturers forecast the yen would average 102.74 per dollar in the fiscal year started April 1, according to the Bank of Japan's quarterly Tankan business sentiment survey released on July 1.

The yen held on to its gains after a government report showed orders for Japanese machinery fell less than economists estimated in June. Orders, indicative of capital spending in the next three to six months, slid 2.6 percent from May, when they climbed 10.4 percent. Economists predicted a 9.9 percent drop, a Bloomberg survey showed.

-- Editors: Chris Young, Nick Reynolds

To contact the reporters on this story: Kosuke Goto in Tokyo at kgoto2@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net