FOREX-Euro bounces after unexpectedly strong German data

Fri Nov 22, 2013 12:24pm EST

Related Topics

* German Ifo index higher than forecast

* Yen weakens vs dollar, BoJ's Kuroda says yen not abnormally low

* Fed's George, Lockhart say December taper on the agenda

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 22 (Reuters) - The euro climbed to a four-year peak against the yen and rose for a second straight day versus the dollar on Friday after much-stronger-than-expected German business sentiment pointed to a continued rebound in Europe's largest economy.

Comments from Federal Reserve officials saying a reduction in stimulus would be discussed at next month's monetary policy meeting failed to boost the dollar. Analysts said the market has already priced in Fed tapering talk in December, limiting its impact on the greenback.

The euro was up 0.7 percent at 137.21 yen, having risen as high as 137.26, its highest level since October 2009. Against the dollar, it gained 0.5 percent to $1.3548.

Germany's closely watched Ifo survey of business sentiment rose far more than forecast in November, reaching its highest level since April 2012. That added to positive sentiment about German growth, the engine of the euro zone economy.

A ZEW survey this week also showed German investor sentiment at its highest in four years, while a purchasing managers index suggested the private sector's expansion was gaining traction.

"The enthusiastic IFO report has investors comfortable increasing exposure to the euro this morning, pushing euro/dollar back above $1.3500," said Scott Smith, senior corporate FX trader at Cambridge Mercantile Group in Calgary.

He added that the confidence displayed in Germany during November is positive overall, but noted that recovery in the euro zone's largest economy has failed to bolster the rest of region, especially the peripheral nations.

The euro was also supported by comments from European Central Bank President Mario Draghi, who played down the possibility of the bank implementing negative deposit rates.

Reports that the ECB would start charging banks to park cash with it overnight had pressured the euro on Wednesday, extending its losses after the release of the Federal Reserve minutes later that day suggesting that U.S. stimulus could be scaled back earlier than expected.

Europe's shared currency also shrugged off comments from ECB Chief Economist Peter Praet that the euro zone faces deflationary pressures.

The dollar index was down 0.4 percent at 80.715, showing little reaction to comments from Kansas City Fed President Esther George and Atlanta Fed chief Dennis Lockhart, who both said that the U.S. central bank will discuss scaling back its asset purchases in its December meeting.

That said, Bank of America Merrill Lynch said in a report that its outlook on the dollar has turned positive.

"The dollar index is resuming its near-term bull trend following the base and bullish break out from 80.38/80.53 support," the bank said.

The dollar hit a four-and-a-half-month high of 101.35 yen on expectations Bank of Japan monetary policy would remain loose and a rise in Japanese stocks to six-month highs on Friday. It was last up at 101.27 yen.

BoJ Governor Haruhiko Kuroda said earlier he did not think the yen was at abnormally low levels and he did not see an asset bubble occurring in Japan.

The Nikkei and the yen have been moving in counter-step for months, with every rally in the share index a signal for speculators to sell the yen. A weaker yen tends to boost Japanese exports and earnings, further supporting shares.

Aaron Smith, managing director at currency hedge fund firm Pecora Capital, said short-term technical factors point toward buying the dollar versus the yen.

"We are at a crucial level in dollar/yen. If 101-102 fails, we can see a dive below 100 and resumption of the 300 pip range in the 97-100 region," he said.

"However, we are cautiously optimistic that a breakout of further yen weakening is in the cards for 2014."

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