Euro rises as German court says bailout fund ruling to go ahead

Strong Pound

The British pound rose to the strongest level in almost four months versus the dollar after a report showed the U.K. trade deficit shrank in July as exports soared, adding to signs the economy is emerging from recession.

Sterling gained 0.3 percent to $1.6038 after trading at $1.6041, the strongest since May 15.

The Federal Constitutional Court is due to decide tomorrow on Germany’s participation in the European Stability Mechanism, a 500 billion-euro ($639 billion) fund that offers loans to member states and may buy their bonds to lower borrowing costs.

A plaintiff in the case had asked for a delay after the European Central Bank last week pledged unlimited funds to buy euro-area government bonds as it seeks to tame the region’s sovereign-debt crisis. The bid won’t change the ruling date, the court said in an e-mailed statement today.

Judicial Watch

“Everybody is very anxious to see what decision we will get from the court,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “The most likely path is the German court ruling in favor of the ESM. Investors are also pricing in the probability of QE going forward.”

The U.S. currency declined against all but two of its 16 major peers before Fed policy makers gather. They will keep their key interest rate at 0.25 percent, according to all 54 economists surveyed by Bloomberg before the announcement on Sept. 13.

The dollar will remain weak if the Fed expands its balance sheet, Chris Weston, an institutional dealer at IG Markets in Melbourne, said in an interview on Bloomberg Television. “I would be looking to sell any kind of big rallies in the dollar,” he said.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.3 percent to 80.184 after touching 80.122, the lowest since May 10.

The dollar has lost 1.3 percent in the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 0.6 percent, the second-biggest advancer after the New Zealand dollar.

Bloomberg News

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