Euro Drops Fourth Day Versus Dollar as German Confidence Falls

By Lukanyo Mnyanda

Jan. 19 (Bloomberg) -- The euro fell against the dollar for a fourth day after a report showed German investor confidence declined more than economists forecast, fueling speculation the region’s economic recovery is stalling.

The 16-nation currency weakened most versus the pound and the dollar after the ZEW Center for European Economic Research said its index of investor and analyst expectations dropped to 47.2 this month, from 50.4 in December. The pound climbed to a six-week high against the dollar after a report showed the nation’s inflation rate jumped in December by the most on record and Kraft Foods Inc. said it’s completing the terms of a recommended offer for U.K. chocolate maker Cadbury Plc.

“The euro zone is probably going to trail behind the recovery in other major economies,” said Toshi Honda, a strategist in London at Mizuho Corporate Bank Ltd. “We are not short of excuses to sell the euro.”

The euro slipped to $1.4305 as of 6:31 a.m. in New York, from $1.4384 yesterday, and traded as low as $1.4303, its weakest level since Jan. 8. It dropped to 129.88 yen, from 130.58 yen. The yen was little changed at 90.75 per dollar.

The euro snapped five months of gains in December amid mounting concern that countries such as Greece may struggle to curb ballooning budget deficits accumulated during the worst financial crisis since World War II. Germany’s economy, Europe’s largest, probably stagnated in the three months through December after growing in the previous two quarters, the Federal Statistics office said last week.

‘Aware of Problems’

Greece may have to step up its efforts to tackle a fiscal crisis that threatens to spread to other countries in the region, European finance chiefs said after a meeting yesterday.

The Greek government “is aware of the magnitude of the problems facing the country,” Luxembourg’s Jean-Claude Juncker told reporters in Brussels after leading the meeting of euro- area finance ministers that discussed Greece’s budget-cutting proposals.

Sovereign risks in the region may bring the euro’s relevance as a reserve currency into question, according to Royal Bank of Scotland Group Plc.

“The problems in Greece will be much harder for the market to gloss over this year and there is not a solution which appears good for the euro,” Greg Gibbs, a foreign-exchange strategist in Sydney at RBS, wrote in a report dated yesterday.

China Tightens

The yen advanced against higher yielding currencies including the South African rand and Australian dollar after the People’s Bank of China guided its benchmark one-year bill yield to the highest level in 14 month as it seeks to curb record loan growth and prevent bubbles in the nation’s property and stock markets.

Japan’s currency jumped 0.6 percent to 83.63 per Australian dollar and was 0.5 percent higher at 12.22 per rand.

“The yen is being driven mainly by changes in global risk sentiment,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “The market is more concerned about China overdoing any tightening of policy, but I don’t think this is justified.”

The pound rose against all 16 of its most-active counterparts tracked by Bloomberg. U.K. consumer prices climbed 2.9 percent from a year earlier, 1 percentage point more than in November, the biggest month-on-month increase since records began in 1997, data from Office for National Statistics in London showed today. The median forecast in a Bloomberg News survey of 30 economists was 2.6 percent.

‘Euro Without Greece’

The currency was also buoyed after Kraft said it’s close to agreeing the terms of a recommended offer for Cadbury. The U.S. company will raise its bid to about 12 billion pounds ($19.7 billion), people familiar with the matter said earlier.

The pound is “benefiting from a lack of alternatives” for traders, Leuchtmann’s team at Commerzbank wrote in an e-mailed note today. “It is being bought as the euro without Greece. In a constellation such as this, M&A deals are only the trigger for a continuation or acceleration of sterling’s rally.”

The pound gained to $1.6378 from $1.6343, after reaching $1.6458, the strongest level since Dec. 8. The U.K. currency also appreciated to 87.36 pence euro from 88.03 pence, after trading at 87.31, a four-month high.

To contact the reporters on this story: Lukanyo Mnyanda in London at lmnyanda@bloomberg.net