The euro strengthened against the dollar and the yen after euro-region inflation unexpectedly accelerated in March, bolstering the case for the European Central Bank to raise interest rates next week.
The 17-nation currency remained higher against most its major counterparts after Ireland announced that four of the country’s banks need to raise 24 billion euros ($34 billion) of additional capital. The dollar weakened as fewer Americans filed jobless benefits applications last week before the March employment report tomorrow. Norway’s krone rose to a two- and one-half-year high against the dollar as oil prices advanced and retail sales exceeded forecasts.
“As risk is being put back on, the euro is benefitting as the market looks forward to interest-rate expectation, regardless of what their economy is doing, the Irish stress test or any banking issues,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo New York. “Not only is the euro resilient against the dollar, it’s kicking everyone’s tail.”
The euro climbed 0.4 percent against the dollar to $1.4185 as of 11:41 a.m. in New York. It appreciated 0.3 percent to 117.42 yen and reached 117.90 yen.
Japan’s currency was little changed at 82.78 per dollar. It earlier depreciated to 83.21, the weakest since March 11, when Japan was struck by its biggest recorded earthquake.
Futures Bets
The shared currency earlier pared gains against the greenback after Anglo Irish Bank Corp. Chief Executive Officer Mike Aynsley said he’s “not sure we’ll get details” of plans for a funding facility for Irish banks after results of the stress tests.
Inflation in the 17-nation euro region quickened to 2.6 percent in March from 2.4 percent in February, European Union estimates showed today. That’s the fastest pace since October 2008, and exceeds the ECB’s 2 percent limit for a fourth month. Economists had forecast inflation to hold steady.
“Consumer price data is outweighing Portugal and Ireland,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “It adds supports to the euro.”
The euro is the second-best performer, after the Swedish krona, in the past quarter, according to Bloomberg Correlation Weighted Indexes, which tracks nine-developed market currencies. It has gained 3.6 percent against nations like the U.S., Canada and Britain.
Trichet Stand
ECB President Jean-Claude Trichet signaled on March 3 that policy makers may raise interest rates at their April 7 meeting. The implied yield on the three-month Euribor contract expiring in December rose three basis points to 2.09 percent today, as investors added to bets that rates will rise.
“The rate differential is being borne out more by the fact that the Fed is still printing money,” said Derek Halpenny, European head of currency research at Bank of Tokyo in London, referring to the Fed’s bond-buying program. “That tells you how far away we are from a shift in yields, and that is what’s dictating the dollar selling at the moment.”
U.S. jobless claims fell by 6,000 to 388,000 in the week ended March 26, Labor Department figures showed today in Washington. Nonfarm payroll are forecast to increase by 190,000 in March, according to the median estimate of 83 economists. The unemployment rate is projected to remain at 8.9 percent.
The Dollar Index, which InterContinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent to 75.894. It approached a 15-month low of 75.249 reached on March 22 and headed for a 4.1 percent decline this quarter. The gauge is weighted 57.6 percent to moves in the euro.
Krone Performs
The Norwegian krone was the best performer against the dollar today, reaching a two and a half year high after retail sales in February were greater than expected. The krone appreciated 0.8 percent to 5.53083 per dollar after reaching 5.51028, the strongest since September 2008.
Crude oil rose 1.4 percent to $105.75 a barrel in New York. Norway, the world’s sixth-largest oil exporter.
Norges Bank, which has kept its benchmark rate at 2 percent since May last year, signaled this month it may start raising borrowing costs earlier than previously indicated to quell a credit-driven surge in property prices.
The yen headed for an 8.4 percent quarterly loss against the euro and 2 percent decline versus the dollar as Japan sold 692.5 billion yen ($8.4 billion) from Feb. 25 to March 29, the Ministry of Finance said in Tokyo today.
Yen Declines
The Japanese currency climbed to a record 76.25 per dollar on March 17, prompting the Group of Seven nations to jointly intervene in foreign-exchange markets the next day for the first time in more than a decade.
Australia’s dollar reached a record versus the U.S. currency after a government report showed retail sales increased in February by more than economists forecast. Sales rose 0.5 percent last month, the Bureau of Statistics said today, surpassing the 0.4 percent increase projected by economists.
The Aussie was 0.2 percent stronger at $1.0353, after rising to $1.0362, the strongest level since the currency was freely floated in 1983.
China’s yuan rose to a 17-year high as G-20 finance chiefs are meeting in Nanjing, China. The yuan gained as much as 0.12 percent to 6.5478 per dollar, the strongest level since the country unified official and market exchange rates in 1993.
China may face pressure from nations including the U.S., India and Brazil to allow a stronger yuan, a seminar initiated by French President Nicolas Sarkozy on reshaping the global monetary system. former U.S. Trade Representative Susan Schwab said.
“My guess is that the conversations will take place, but they will take place quietly,” Schwab, a strategic adviser at law firm Mayer Brown LLP, told Bloomberg Television from Washington.
To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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