Euro Rises Against Yen as German Confidence Beats Estimates

Aug. 18 -- The euro rose for the first time in three days against the yen as a report showed German investor confidence jumped to the highest level in more than three years, adding to evidence an economic recovery is taking shape.

The pound increased from near a one-month low versus the dollar after a report showed the U.K. inflation rate was higher in July than forecast as the nation’s recession eased. The dollar erased its loss against the euro as a report showed U.S. housing starts unexpectedly dropped, reviving demand for the greenback’s safety.

“The German confidence report is a positive for the euro, suggesting Europe is coming out of recession,” said Sacha Tihanyi, a currency strategist at Scotia Capital Inc. in Toronto. “Then the currency market took some negative tone after the housing data, keeping dollar selling much restrained. You get a feeling the market is questioning whether there will be a further sustained move in risky assets on the upside.”

Europe’s currency increased 0.2 percent to 133.31 yen at 9:58 a.m. in New York, from 133.08 yesterday. The euro was little changed at $1.4081 after earlier rising as much as 0.5 percent. It touched $1.4046 yesterday, the lowest level since July 30. The yen weakened 0.1 percent to 94.63 per dollar, from 94.50 yesterday, when it reached 94.21, the strongest level since July 29.

The Mannheim-based ZEW Center for European Economic Research said its index of investor and analyst expectations for Germany increased this month to 56.1 from 39.5 in July. The median forecast of 35 economists in a Bloomberg News survey was for the index to rise to 45.

Germany’s Growth

Germany’s economy grew 0.3 percent in the second quarter, bringing a halt to the worst recession since World War II sooner than forecasters expected, a report showed last week.

“Recent data shows Europe can benefit from the global economic recovery,” said Marcus Hettinger, a foreign-exchange strategist in Zurich at Credit Suisse Group AG, Switzerland’s largest bank by market value. The common currency may advance to $1.50 in three months, Hettinger said.

The dollar pared its gain versus the yen after the Commerce Department reported that U.S. housing starts unexpectedly declined to an annual rate of 581,000 last month from a revised 587,000 pace in June. The median forecast of 70 economists surveyed by Bloomberg News was for an increase to 599,000 from a previously reported 582,000.

“We’ve been used to a bit more positive surprises on the housing front,” said Brian Kim, currency strategist at UBS AG in Stamford, Connecticut. “You’re seeing some rotations following that, potentially away from the euro and into Treasuries. It’s an environment where people are still skittish, and the summer liquidity just causes more knee-jerk reactions than usual.”

U.S. Treasuries

Treasuries pared losses on the housing data, with the yield on the benchmark 10-year note little changed at 3.47 percent and the rate on the two-year security at 1.02 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against currencies of six major U.S. trading partners such as the euro and yen, was little changed at 79.291 after earlier falling as much as 0.3 percent.

Construction of single-family houses, which account for 75 percent of the industry, rose 1.7 percent to a 490,000 rate, today’s Commerce Department report also showed.

Prices paid to U.S. producers decreased 0.9 percent in July after rising 1.8 percent in the previous month, the Labor Department said. The median forecast of 70 economists surveyed by Bloomberg News was for a decrease of 0.3 percent.

Stronger Pound

Sterling advanced versus the dollar and euro after a U.K. Office for National Statistics report showed the inflation rate unexpectedly held at 1.8 percent in July, exceeding the median forecast for a reduction to 1.5 percent. The rate will probably drop below 1 percent later this year and may miss the central bank’s goal in three years, Bank of England projections show.

The pound appreciated 0.6 percent to $1.6451 after reaching $1.6276 yesterday, the lowest level since July 17. Sterling reduced its decline since Aug. 5 to 3.2 percent. The currency slumped after policy makers said on Aug. 6 that the recession was deeper than anticipated. The euro fell 0.6 percent to 85.64 British pence today.

The dollar is in a downtrend after falling below 94.76 yen, a key price based on the Fibonacci sequence of numbers, according to Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. That level is a 50 percent retracement from a two-month high of 97.79 reached on Aug. 7 to a six-month low of 91.74 reached on July 13.

The next level of support will be 94.05, which represents a 38.2 percent retracement of the decline, Nihei said. Support is where buy orders are clustered.

“That’s the support level the dollar failed to break in late July,” Tokyo-based Nihei said yesterday.