Specter of German recession sends dollar climbing for second day

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(Oct 15): The dollar gained versus peers for a second day as the U.S. economy’s momentum contrasted with concerns that Germany, Europe’s biggest economy, is slipping toward recession.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose before the Federal Reserve releases its Beige Book on economic conditions. The euro fell ahead of a speech today by European Central Bank President Mario Draghi. The pound touched an 11-month low after data showed the slowest U.K. inflation in five years. The yuan fell as its daily fixing was cut and consumer-price gains slowed.

“The U.S. is in a much better place compared to its peers,” said Stan Shamu, a markets strategist in Melbourne at IG Australia, a unit of IG Group Holdings Plc. “The U.S. dollar will ultimately benefit.”

The Bloomberg dollar index rose 0.1 percent to 1,069.24 as of 2 p.m. in Tokyo from yesterday, when it advanced 0.3 percent. The dollar gained 0.1 percent to $1.2640 per euro, adding to a 0.7 percent rally yesterday that was the strongest gain since Oct. 3. The greenback climbed 0.2 percent to 107.27 yen. The euro was little changed at 135.59 yen.

The U.S. economy will expand 2.2 percent this year and 3 percent in 2015, according to Bloomberg News surveys. The euro area will grow 0.8 percent and 1.3 percent, while Japan will gain 1 percent in 2014 and 1.2 percent, the surveys predict.

Germany Teetering

Germany’s Economy Ministry yesterday cut its 2014 forecast to 1.2 percent from 1.8 percent, and reduced its estimate for next year to 1.3 percent from 2 percent. The ZEW Center for European Economic Research said its index of investor and analyst expectations slid for a 10th month. ZEW President Clemens Fuest said he doesn’t rule out a technical recession.

The euro has dropped 1 percent in the past three months against a basket of nine developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar is up 7.1 percent while the yen has gained 1 percent.

Draghi will speak in Frankfurt today after saying Oct. 11 that the central bank will use further unconventional monetary policy instruments if needed to support a recovery. It has implemented a negative deposit rate, offered cheap loans to banks and unveiled a plan to buy asset-backed securities.

“We continue to expect further easing measures in Q1, and would look for ECB officials to continue to stress willingness to do more if necessary,” Daniel Katzive and Vassili Serebriakov, New York-based strategists at BNP Paribas SA, wrote in a note to clients. BNP is recommending investors make bets that would benefit if the euro extends declines against the dollar.

Slowing Inflation

The pound fell the most in a month yesterday as a report showed U.K. inflation slowed, damping expectations the Bank of England will increase interest rates. The annual pace of consumer-price growth dropped to 1.2 percent in September, the Office for National Statistics said.

Sterling was little changed at $1.5902 following a 1.1 percent slide yesterday, the steepest since Sept. 8. It touched $1.5877 today, the least since Nov. 12.

China’s yuan ended two days of gains as a report showed consumer price gains slowed to 1.6 percent from a year earlier in September, compared with 2 percent in August. That was less than the 1.7 percent median estimate in a Bloomberg survey.

The People’s Bank of China lowered its reference rate for the yuan by 0.08 percent, the biggest reduction since Aug. 21, to 6.1455 against the greenback.

“The inflation data show China’s growth is slowing down, which will limit the room for yuan appreciation in the near term,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd.

The yuan fell 0.03 percent to 6.1264 per dollar, ending a two-day gain of 0.1 percent, China Foreign Exchange Trade System prices show. The currency touched 6.1230 yesterday, the strongest level since March 7.