The euro traded at almost a seven-week high against the dollar after a report showed Germany’s factory orders rebounded in June more than economists forecast, adding to signs the region is recovering.
The 17-nation currency rose versus most of its 16 major counterparts after separate data showed Italy’s recession eased in the second quarter. The yen touched an almost six-week high versus the greenback. The Australian dollar gained for a second day against the U.S. currency after the central bank damped expectations of further interest-rate cuts after reducing its benchmark to a record low.
“Stronger-than-expected German factory orders have been encouraging and support the view that, economically, the European outlook is finally beginning to turn,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia, wrote in a note to clients.
The euro gained 0.4% to $1.3305 at 3:09 p.m. New York time after rising to $1.3345 on July 31, the highest level since June 19. The common currency fell 0.3% to 129.97 yen. Japan’s currency rose 0.6% to 97.69 yen per dollar after reaching 97.51, the strongest since June 26.
The South African rand fell versus all 16 of its major peers as an expansion in U.S. service industries in July supported speculation that the Federal Reserve is poised to reduce monetary stimulus. The currency decreased 0.9% to 9.9335 per dollar after earlier rising 0.3%.
Poland’s zloty rose against most of its 31 most-traded counterparts after the increase in German factory orders. The zloty appreciated 0.5% to 3.1605 per dollar after touching 3.1568, its strongest level since June 14.
The British pound weakened for the first time in four days against the euro before Bank of England Governor Mark Carney presents a review tomorrow for implementing forward guidance in the U.K. Sterling depreciated 0.4% to 86.65 pence per euro.
The euro has strengthened 5.8% this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 4.8%, while the yen slumped 8.2%.
A measure of price fluctuations among Group of Seven currencies fell for a fourth day. JPMorgan Chase & Co.’s G-7 Volatility Index declined to 9.42%, the lowest intraday level in almost two weeks.
German factory orders, adjusted for seasonal swings and inflation, increased 3.8% from May, when they fell 0.5%, the Economy Ministry in Berlin said today. Analysts forecast a gain of 1% in June, according to the median of 42 estimates in a Bloomberg News survey.
“The euro is looking pretty fully valued versus the dollar here,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “The data is telling us we’ve probably hit the bottom in the euro area and we’re heading towards some modest growth. Whilst we’re seeing some degree of improvement it’s a much slower recovery than we’re seeing elsewhere.”
European Central Bank President Mario Draghi said last week that economic indicators signal the euro region is past the worst of its longest-ever recession, while reiterating that interest rates will stay low for the foreseeable future.
The euro’s gains were limited after ECB Chief Economist Peter Praet said interest rates may be cut from a record-low 0.5%.
Reserve Bank of Australia Governor Glenn Stevens trimmed the overnight cash-rate target by a quarter percentage point to 2.5% and said the central bank’s board “has previously noted that the inflation outlook could provide some scope to ease policy further.” That contrasted with last month’s view that the outlook for prices “may provide some scope for further easing.”
“They haven’t said that they have more room to cut rates,” said David Forrester, a senior vice president for Group of 10 currency strategy at Macquarie Bank Ltd. in Singapore. “It’s considered more of a neutral bias than an easing bias. I think we’ll see a squeeze” higher in the Aussie, he said.
Australia’s dollar appreciated 0.6% to 89.85 U.S. cents after sliding to 88.48 cents yesterday, the weakest level since August 2010.
The dollar briefly pared losses as the U.S. trade gap shrank 22.4% to $34.2 billion from a revised $44.1 billion in May that was smaller than previously estimated, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of 72 economists called for a $43.5 billion deficit. Exports increased to an all-time high while imports fell to a three-month low.
Trading in over-the-counter foreign-exchange options totaled $25 billion, compared with $19 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10.5 billion, the largest share of trades at 42%. Options on the Australian dollar-U.S. dollar rate totaled $2.5 billion, or 10%.
Dollar-yen options trading was 65% more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 12% less than average.