Dollar Strengthens From Two-Month Low Against Euro on U.S. Growth Outlook

By Emma Charlton and Candice Zachariahs - Jan 24, 2011 4:41 PM GMT+0800

The dollar climbed 0.4 percent to $1.3573 per euro. Photographer: Daniel Acker/Bloomberg

The dollar advanced from a two-month low against the euro before U.S. reports this week that economists said will showconsumer confidence climbed and gross domestic product growth accelerated.

The Japanese yen weakened against 13 of its 16 most-traded counterparts as rising stocks in Asia and Europe sapped demand for the safest assets. The pound fell before a government report that economists said will show U.K. growth slowed last quarter. Asian currencies advanced, led by Taiwan’s dollar and South Korea’s won, on optimism funds will flow into the region as the world’s fastest economic growth gives policy makers scope to raise interest rates.

“The U.S. economic data flow could be dollar supportive this week,” said Lee Hardman, a strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The yen has been on the defensive as the market’s taken on a more risk-friendly environment.”

The dollar climbed 0.4 percent to $1.3573 per euro as of 8:39 a.m. in London, after earlier falling to $1.3647, the lowest level since Nov. 22. The greenback also gained 0.4 percent to 82.88 yen, and Japan’s currency was at 112.46 per euro from 112.48 in New York last week.

The U.S. Conference Board’s confidence index rose to 54.2 in January from 52.5 in December, according to a Bloomberg survey before the report tomorrow. Gross domestic product climbed at a 3.5 percent annual pace last quarter, from a 2.6 percent rate the previous three months, a separate survey showed before the data on Jan. 28.

Obama Speech

President Barack Obama said tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals. TheFederal Reserve will leave its benchmark rate unchanged at zero to 0.25 percent at a Jan. 25-26 meeting, according to all 98 economists surveyed by Bloomberg.

“My principal focus, my number one focus, is going be making sure that we are competitive, that we are growing, and we are creating jobs not just now but well into the future,” Obama said in a video released over the weekend. “I’m focused on making sure the economy is working for everybody, for the entire American family.”

The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, rose 0.2 percent to 78.335, after sliding 1.2 percent last week.

Asian Currencies

Asian currencies strengthened as the MSCI Asia Pacific Index of shares gained 0.2 percent.

Taiwan’s dollar advanced for a second day before reports forecast to show industrial production gained and the jobless rate fell. South Korea is expected to report a pickup in economic growth for the fourth quarter on Jan. 26.

“The scenario of economic outperformance in Asia remains intact, keeping upward pressure on the regional currencies in the long-term,” said Tohru Nishihama, an economist at Dai-ichi Life Research Institute Inc. in Tokyo. “South Korea’s growth looks to be steady and India may raise rates. Those should be supportive for their currencies.”

Taiwan’s dollar appreciated 0.2 percent to NT$29.051. The won gained 0.3 percent to 1,121.10.

The pound snapped two weeks of gains against the greenback before tomorrow’s growth report.

The U.K.’s gross domestic product rose 0.5 percent in the fourth quarter, compared with a 0.7 percent increase in the third quarter, according to a Bloomberg News survey.

“The markets are a bit premature in expecting the Bank of England to hike rates anytime in the next few months,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole CIB, said in an interview with Bloomberg Television. “That might just see a little more downside risk to sterling.”

The pound declined 0.3 percent to $1.5952, after appreciating 0.8 percent last week.

To contact the reporters on this story: Emma Charlton in London at echarlton1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net