Euro Rises After Ifo Survey Shows German Confidence Improved

The euro rose against the dollar and the yen, reversing earlier declines, after a private report showed German business confidence unexpectedly strengthened for a second month in February.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 104.1, from 103.4 in January. Economists had forecast a drop to 102.9, according to the median of 45 estimates in a Bloomberg News survey.

``Markets have this sense that while the euro zone has been hit by the slowdown in the U.S., thing are not quite as bad as they seem,'' said Steve Barrow, chief currency strategist in London at Bear Stearns Cos., the fifth-largest U.S. securities firm. ``That's proven positive as far as the euro is concerned.''

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Euro Rises After Ifo Survey Shows German Confidence Improved

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally

Asian currencies rose, led by the Taiwan dollar and South Korea's won, on speculation rising stocks will lure overseas investors to the region's assets.

Taiwan's currency traded near its highest in 20 months as overseas investors bought NT$6.21 billion ($196 million) more of the island's stocks than they sold today, compared with NT$2.42 billion yesterday, according to Stock Exchange. The won rose after a government report yesterday showed unemployment fell to the lowest rate in more than five years last month.

``There were quite a lot of foreign fund inflows,'' said Henry Lin, a currency trader at Shin Kong Commercial Bank in Taipei. ``The foreign-exchange market has been quite clearly taking cues from stocks.''

Taiwan's dollar rose 0.2 percent to NT$31.698 as of 4:31 p.m. local time, from NT$31.746 yesterday, according to Taipei Forex Inc. The won climbed to 943.85, compared with 945.30 yesterday, according to Seoul Money Brokerage Services Ltd.

Asian Currencies Rise, Led by Taiwan Dollar, as Stocks Rally

Dollar Falls as Housing Reports May Bolster Case for Fed Cuts

The dollar fell against 15 of the 16 most-active currencies on concern industry and government reports will show the housing recession in the U.S. is deepening.

The U.S. currency declined to a two-week low against the euro on speculation the Federal Reserve will keep cutting its benchmark interest rate from 3 percent. Australia's dollar rose to a three-month high after the nation's central bank said it considered a larger increase when raising borrowing costs to an 11-year high of 7 percent this month.

``We think there's a chance we'll break $1.48 against the euro on the expectation the U.S. will cut rates,'' said Chris Furness, head of currency strategy in London at 4Cast Ltd., a research company that counts central banks among its subscribers. ``We still have a problem. We don't know whether it's going to be recession or not.''

The dollar fell to $1.4742 per euro, the lowest since Feb. 5, and traded at $1.4726 as of 8:45 a.m. in London, from $1.4658 in New York yesterday. It weakened to 107.86 yen from 108.23 yen. The euro was at 158.90 yen, from 158.63.

Japan's currency also advanced against the dollar, or greenback, on speculation that China's central bank will raise borrowing costs and seek a stronger exchange rate to curb the fastest inflation in more than 11 years.

The U.S. currency fell 0.7 percent to 91.97 cents versus Australia's dollar, reaching the lowest since Nov. 9. The U.S. greenback also declined against the New Zealand dollar to 79.79 U.S. cents, near the lowest since July 26, from 79.52 yesterday.

Australian Dollar

The Australian dollar rose versus all 16 major currencies after central bank Assistant Governor Malcolm Edey said inflation may accelerate.

Minutes from the Reserve Bank of Australia's Feb. 5 meeting published today showed Governor Glenn Stevens and his colleagues discussed raising the benchmark rate by 50 basis points to cool the fastest inflation in almost two decades.

``The discussion about monetary policy in the minutes had a much sharper sting in the tail as far as the near-term rate outlook is concerned,'' wrote David de Garis, senior markets economist at National Australia Bank Ltd. in Sydney, in a note to clients. ``We still expect a 25 basis-point increase in March and a 40 percent chance of another.''

The yield advantage on Australian two-year bonds over similar-maturity U.S. Treasuries increased to 5.09 percentage points, the widest since December 1990.

The U.S. dollar dropped 5.1 percent versus the euro since the Federal Reserve started to cut interest rates on Sept. 18, the fourth-worst performer among the 16 most-active currencies.

`Sense of Vigilance'

``The markets have a heightened sense of vigilance before the U.S. housing data and are selling dollars,'' said Kenichiro Fujita, manager of derivatives-marketing in Tokyo at Aozora Bank Ltd., Japan's ninth-largest publicly traded lender by assets. ``The Fed will cut rates to 2 percent to support the economy and to avoid criticism that it always falls behind the curve.''

Dollar Falls as Housing Reports May Bolster Case for Fed Cuts

Yuan to Rise Versus Major Currencies, Researcher Says

China will shift focus to managing the yuan's exchange rate against currencies of its biggest trading partners and not just the dollar, allowing for a broader appreciation, former central bank adviser Li Yang said.

China's currency has fallen 6 percent against the euro since a link to the dollar was scrapped in 2005, prompting calls from European officials including French President Nicholas Sarkozy to allow faster gains. Some U.S. lawmakers also claim the yuan is kept undervalued to make exports competitive, and have threatened sanctions unless it extends a 15 percent gain versus the dollar since the peg ended.

There's a ``shift in how the central bank will be watching the rate and the focus of its policy target,'' Li, head of financial research at the Chinese Academy of Social Sciences in Beijing, said in a Feb. 14 interview. The central bank will focus on a trade-weighted ``effective'' exchange rate, he said.

Gains in the yuan against more currencies may help China slow growth in its trade surplus, which has flooded the economy with cash and driven inflation to an 11-year high. Gross domestic product grew 11.4 percent in 2007 from a year earlier, the fastest pace in 13 years, driven by exports and investment.

The yuan fell as much as 0.6 percent against the dollar in the first day of trading after a week-long holiday on Feb. 13, the biggest loss since the peg ended. The currency rebounded as the China Securities Journal cited unnamed experts on Feb. 14 saying the yuan will rise against major currencies this year.
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Dollar feels weight of rate talk

The dollar suffered against the euro this week after comments from Ben Bernanke, chairman of the Federal Reserve, cemented expectations for further cuts in US interest rates.

In testimony before US Congress on Thursday, Mr Bernanke reiterated the downside risks to US economic growth and said the Fed stood ready to take action in response, underlining the central bank’s willingness to loosen US monetary policy further.

Mr Bernanke said a significant worsening in financial conditions or in credit availability “would certainly be a warning bell that we need to take further action”.

But Mr Bernanke also said he expected a stronger pace of US growth to start later this year as the effects of recent monetary and fiscal stimuli began to be felt.

Ashley Davies at UBS said he believed the dollar would likely benefit in the longer run, although currency markets chose to focus on the prospects for imminent rate cuts rather than a US recovery in the short term.

“With downside risks to growth in the US already largely priced into the dollar, but eurozone data deteriorating and therefore justifying monetary easing, we look for euro/dollar to trade down to $1.43 over the next three months,” he said.

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Dollar May Rebound to 110 Yen Options Show, MUFG's Miki Says

Currency options show the dollar may rebound to around 110 yen in the next few weeks, said Takeharu Miki, currency options manager in Tokyo at Bank of Tokyo- Mitsubishi UFJ Ltd.

The spread between the one-month and one-year risk reversal rate has started to narrow, showing options traders are speculating less on a decline in the U.S. currency, Miki said. Risk reversals are the difference between the cost for call options, which grant the right to buy a currency at a fixed price, and puts, which allow sales.

``I'm watching this term structure because it's all about sentiment,'' Miki from the unit of Japan's biggest publicly traded lender, said in an interview in Tokyo. ``This spread will narrow when the dollar starts to recover. I see the potential for a rise in the currency.''

The dollar traded at 108.24 yen at 6:05 a.m. in London from 108.33 late yesterday in New York, when it rose to a one-month high of 108.38. The U.S. currency has gained 1.6 percent against the yen since the start of this month. It fell 10.5 percent over the past year.

The one-year 25-delta risk reversal rate for dollar-yen options was 1.275 percentage points more than the one-month rate today, down from an almost four-year high of 2 percentage points on Dec. 7. Delta measures the change in the price of an option relative to moves in the underlying currency.

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Australian Dollar Rises, Bonds Decline as Jobs Beat Forecasts

The Australian dollar rose and bonds declined after a government report showed the unemployment rate fell to the lowest since 1974, spurring traders to add to bets the Reserve Bank of Australia will raise interest rates in March.

The local dollar, known as the Aussie, climbed against all of the 16 most-traded currencies on prospects higher borrowing costs will encourage investors to funnel funds into Australian dollar-denominated assets. The yield advantage on Australia's two-year government notes over similar-maturity U.S. Treasuries widened to 4.99 percentage points, the most since 1990.

``The data highlights a very high risk that the RBA will be forced to follow up its February rate hike with one in March,'' said Sue Trinh, a currency strategist at RBC Capital Markets in Sydney. ``There's a bias to play a long Aussie'' versus New Zealand's dollar, she said. A long position is a bet on an asset price's gain.

The Australian dollar rose to 90.28 U.S. cents as of 5:19 p.m. in Sydney from 89.78 cents immediately before the report was issued and 89.86 cents in late Asian trading yesterday. It climbed to NZ$1.1481 versus NZ$1.1422.

The local dollar may advance to as high as 93 cents and NZ$1.20 within three months, Trinh forecast.

The Bureau of Statistics said in Sydney the number of people employed climbed 26,800 in January, beating estimates of economists surveyed by Bloomberg News for 15,000 new jobs. The jobless rate fell to 4.1 percent from 4.3 percent.

``The economy seems to be doing pretty well,'' said Lee Wai Tuck, a currency strategist at Forecast Pte Ltd. in Singapore. ``I'd like to see the Aussie on the upside.''

Read more:Australian Dollar Rises, Bonds Decline as Jobs Beat Forecasts