Dollar Rises as Potential Curbs in China Spur Safety Demand

By Ye Xie

Aug. 26 (Bloomberg) -- The dollar advanced against the euro for a third day after Xinhua News Agency reported China is studying curbs on overcapacity in industries including steel and cement, spurring demand for a refuge.

“The market has a lot of hope for a recovery led by China,” said Steven Butler, director of foreign-exchange trading at Scotia Capital Inc. in Toronto. “Things may not be as rosy as we think. There’s a little bit of concern there. It led to a bit of risk aversion and helped the dollar.”

The dollar increased 0.2 percent to 1.4264 versus the euro at 7:45 a.m. in New York, from $1.4296 yesterday. The dollar traded at 94.16 yen, compared with 94.18. The yen advanced 0.2 percent to 134.33 per euro, from 134.65.

The euro advanced earlier against the dollar after a report on German business sentiment added to evidence the recovery in the 16-nation region is gathering pace.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 90.5, the highest reading since September last year. Economists expected a reading of 89, the median of 41 forecasts in a Bloomberg News survey showed.

European Central Bank President Jean-Claude Trichet said on Aug. 22 there are “signs confirming that the real economy is starting to get out of the period of freefall.”

This “does not mean at all that we do not have a very bumpy road ahead of us,” he said.
U.S. orders for durable goods probably jumped 3 percent in July, erasing the previous month’s 2.5 percent decline, according to the median forecast of 72 economists surveyed by Bloomberg News. The Commerce Department releases the data at 8:30 a.m. Washington time.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against the yen, euro, Swiss franc, pound, Swedish krona and Canadian dollar, rose 0.3 percent.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: August 26, 2009 07:53 EDT