The euro strengthened to an almost eight-month high versus the dollar after French consumer confidence unexpectedly improved and Italian business sentiment climbed, underpinning demand for the region’s assets.
The yen reached a 27-month low against the dollar as John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC, said Japan’s currency may weaken to 90 per dollar for the first time since June 2010. The currency fell against all 16 of its major counterparts before a report tomorrow is forecast to show Japanese consumer prices fell. The Dollar Index declined as U.S. lawmakers return to Washington to try to craft a deal to avert the so-called fiscal cliff.
“We aren’t in as desperate times as we were in the middle of this year and there’s some upward pressure on the euro,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “With the yen being under pressure, the euro is benefiting. The market is looking with a certain degree of caution at the yen because the politicians are talking tough.”
The euro appreciated 0.4 percent to $1.3280 at 8:43 a.m. New York time, after rising to $1.3308 on Dec. 19, the highest since April 3. The common currency gained 0.7 percent to 114.04 yen after touching the strongest since Aug. 4, 2011. The yen fell 0.3 percent to 85.87 per dollar, touching the lowest level since Sept. 17, 2010.
South Africa’s rand has gained 4.8 percent this month against the U.S. currency, the biggest increase of the greenback’s major peers. The yen has declined 4 percent.
This year, Norway’s krone has advanced 7.6 percent as the yen has fallen 10.4 percent.
An index of French household sentiment rose to 86 in December from 84 in November, the first monthly increase since May, the national statistics office Insee said. Economists forecast an unchanged reading of 84, according to a Bloomberg survey. A gauge of Italian business climbed to 88.9 from 88.5, according to Rome-based national statistics institute Istat.
The euro’s 14-day index of relative strength climbed to 70.6 to the dollar. A level of more than than 70 signals its rally may have been too far, too fast.
The euro has appreciated 2.9 percent in the past three months, the second best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swiss franc. The yen tumbled 11 percent and the dollar dropped 0.1 percent.
The yen slumped after Prime Minister Shinzo Abe was approved as prime minister yesterday by parliament. His Liberal Democratic party won a landslide victory in lower house elections on Dec. 16, pledging to weaken the currency.
Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to a Bloomberg News survey before tomorrow’s report. The Bank of Japan’s inflation target is 1 percent.
Yen depreciation to “86.5 would be about as high as we’d go in this cycle,” Greg Anderson, the North American head of G- 10 currency strategy at Citigroup Inc. in New York, said in a television interview on Bloomberg Surveillance with Sara Eisen and Alix Steel. “We’ve had risk-on and we’ve hard risk-off days due to the fiscal cliff over the last month, and it hasn’t seemed to matter. The yen weakens every day.”
The yen’s 14-day relative strength index dropped to 19.7 against the dollar today and dropped to 20.2 versus the euro. A reading below 30 indicates an asset’s decline has been too rapid it is poised to rise.
The Dollar Index dropped for a second day as President Barack Obama and U.S. Congress return to Washington to resume negotiations over the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to take effect next month.
Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter sent to congressional leaders yesterday.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.3 percent to 79.40.