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By Ben Levisohn and Inyoung Hwang
Jan. 29 (Bloomberg) -- The dollar rose to a six-month high against the euro as reports showed the U.S. economy beat estimates by growing in the fourth quarter at the fastest pace since 2003 and consumer confidence improved in January.
The euro posted its biggest monthly drop against the yen in a year on concern Greece’s budget problems will spread. The franc fell from a 10-month high against the euro on speculation Switzerland’s central bank intervened in currency markets to curb its strength and support the nation’s economy.
“The dollar was strong already, and it’s continued the trend,” said John Norris, senior market strategist at Brewer Investment Group in Chicago. “Any time the numbers beat expectations that significantly, it’s good news.”
The U.S. currency advanced 0.8 percent to $1.3863 per euro at 5:01 p.m. in New York, from $1.3971 yesterday. It reached $1.3863, the strongest level since July 9. The dollar increased 0.4 percent to 90.27 yen, from 89.92. It earlier advanced 1.1 percent, the biggest intraday gain since Jan. 7. The yen climbed 0.4 percent to 125.13 per euro, from 125.63, after earlier touching 124.82, the strongest level since April 28.
The euro may fall below $1.35 if it sustains a drop past $1.38, the 50 percent Fibonacci retracement of the rally from its March 4 low of $1.2457, said Richard Ross, a global technical strategist at Auerbach Grayson Co. in New York. The 16-nation currency may reach $1.3483, the next Fibonacci level, according to Ross.
“The euro is on a pretty precipitous slope,” Ross said. “This isn’t a correction anymore. It’s looking more like a cyclical bear market.”
Fibonacci Analysis
Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. A break through one level indicates a currency may move to the next line. A failure to break through indicates a trend may be ending.
The franc weakened as much as 0.4 percent to 1.4765 after appreciating to 1.4636, the strongest level since March 10, two days before the central bank intervened last year.
“We could associate this possibly with action from the Swiss National Bank,” said Russ Oxley, head of rates in Glasgow at Ignis Asset Management, which has 71 billion pounds ($114 billion) of assets. “People thought they were much more comfortable with the strength of the euro, but that obviously seems to have been a false impression.”
Swiss National Bank President Philipp Hildebrand, in Davos, Switzerland, for the annual meeting of the World Economic Forum, declined to comment. Central banks intervene by buying or selling currencies to influence exchange rates.
Gain in GDP
The dollar strengthened as the Commerce Department reported that gross domestic product increased at a 5.7 percent annual pace from October through December, the fastest in six years. The median forecast of 84 economists in a Bloomberg News survey was for a 4.7 percent advance.
“With good news, the market reacted in favor of the currency,” said Ronald Leven, currency strategist at Morgan Stanley in New York. “The dollar will hold up pretty well.”
The dollar extended its gain versus the euro after the Reuters/University of Michigan final index of U.S. consumer sentiment increased to 74.4 in January, from 72.5 a month earlier. The median estimate of 58 economists in a Bloomberg News survey was for an increase to 73.
The euro fell 6.1 percent versus the yen in January in its biggest monthly drop since depreciating 9.1 percent in January 2009. Greece’s bonds tumbled on concern the nation can’t reduce its budget deficit without outside help. The bonds were the world’s worst performers in January, losing 6 percent, Bloomberg/EFFAS indexes show.
‘Financial Support’
“The EU and the International Monetary Fund will ultimately be willing to provide some type of financial support for Greece,” buoying the euro in months to come, Jens Nordvig, a managing director for currency research at Nomura International Plc in New York, wrote in a report yesterday.
The European Commission expects to give an assessment of Greece’s budget plan on Feb. 3, the commission said in a statement on its Web site today.
The yen fell earlier from a nine-month high versus the euro as Bank of Japan Governor Masaaki Shirakawa said at a business conference in Tokyo today that Japan’s policy makers are “prepared to act swiftly and decisively should concerns that financial market stability might be hampered re-emerge.” The central bank’s monthly 1.8 trillion yen ($20 billion) of bond purchases are appropriate, he said.
“Deflation continues to stalk Japan and a strong yen is going to make it worse, so the risk of them taking action is not something that can be ignored,” said Jeremy Stretch, a currency strategist in London at Rabobank International.
Finance Minister Naoto Kan reiterated his call for the central bank to support an economy under threat from falling prices and a rising currency.
The yen gained this month against all of its 16 most-traded counterparts tracked by Bloomberg, fanning concern its strength will dent exports for companies such as Toyota Motor Corp.
To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net
Last Updated: January 29, 2010 17:18 EST
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