Euro Trades Near Six-Month Low Before German Ifo Sentiment Data

By Stanley White and Ye Xie

Aug. 26 (Bloomberg) -- The euro traded near a six-month low against the dollar before a report forecast to show business confidence in Germany declined this month to the lowest level in almost three years.

The euro was also near a three-month low versus the yen as traders pared bets the European Central Bank will raise interest rates this year. The yen rose against the Australian and New Zealand dollars as speculation insurer American International Group Inc. will post a loss prompted investors to pare holdings of higher-yielding assets funded in the Japanese currency.

``There's a good chance for the euro to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``People are giving up on bets for euro gains as the chance of an ECB rate hike fades away.''

The euro was little changed at $1.4751 at 8:27 a.m. in Tokyo. It fell to $1.4631 on Aug. 19, the lowest since Feb. 20. The euro was at 161.13 yen, near the three-month low of 160.20 yen reached on Aug. 21. The dollar bought 109.26 yen. The euro may decline to $1.4740 today, Soma forecast.

The yen climbed to 94.14 per Australian dollar from 95.34 late yesterday in Asia. It also advanced 1.7 percent to 76.45 versus the New Zealand dollar as Japanese stock futures fell in Chicago after U.S. stocks declined by the most in a month on concerns credit-market losses will widen.

Investors reduced so-called carry trades after AIG tumbled to a 13-year low after Credit Suisse Group said the insurer may lose $2.41 billion this quarter on mortgage-related writedowns.

In carry trades, investors get funds in a country with low borrowing costs and buy assets where returns are higher. Japan's target lending rate of 0.5 percent compares with 7.25 percent in Australia and 8 percent in New Zealand.

Ifo Survey

The Ifo institute's German business confidence index will decline to 97.2 in August, the lowest level since September 2005, from 97.5 the previous month, according to the median forecast of 35 economists surveyed by Bloomberg News.

The euro has lost 8 percent versus the dollar since touching the all-time high of $1.6038 on July 15 as the European economy shrank in the second quarter and crude oil dropped 20 percent from its record of $147.27 a barrel set last month.

Traders reduced bets the ECB will raise its 4.25 percent benchmark rate this year. The implied yield on the Euribor futures contract expiring in December was 5.045 percent, down from 5.065 percent at the start of the month.

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netYe Xie in New York at yxie6@bloomberg.net