Dollar Rises Most Since December as Fed Seen Ending Rate Cuts

In "bloomberg.com":

April 24 (Bloomberg) -- The dollar rose the most against the euro since December as traders increased speculation the Federal Reserve will stop cutting interest rates and business confidence slumped in Germany and France.

The greenback appreciated against most of the major currencies as orders for U.S. durable goods excluding transportation equipment increased more than forecast, indicating parts of the economy are weathering the housing slump. The New Zealand dollar weakened after the central bank signaled it may lower the official cash rate later this year.

``There's a growing feeling of caution among investors about buying the euro,'' said Carl Forcheski, vice president on the corporate currency sales desk in New York at Societe Generale SA. The dollar ``was helped by growing sentiment that the Fed will stop cutting for a while after this month.''

The dollar rose 1.3 percent to $1.5683 per euro at 4:14 p.m. in New York, from $1.5889 yesterday. The 15-nation currency reached $1.6019 on April 22, the highest level since its 1999 debut. The euro dropped 0.4 percent to 163.67 yen, from 164.28.

Against the yen, the U.S. currency advanced 1 percent to 104.36, from 103.38 yesterday, on the increase in durable-goods orders and an unexpected drop in initial jobless claims.

Futures on the Chicago Board of Trade show an 18 percent chance the U.S. central bank will hold the target lending rate at 2.25 percent, compared with no chance a week ago. There's an 82 percent likelihood of a cut to 2 percent. The yield on the two-year Treasury note increased 0.19 percentage point to 2.38 percent on speculation the Fed is close to the end of its interest-rate reductions.

Swiss Franc

The Swiss franc fell against all of the major currencies as rising U.S. stocks persuaded investors to sell the currency to buy higher-yielding assets outside Switzerland. The Standard & Poor's 500 Index rose 0.6 percent.

Switzerland's target lending rate is 2.75 percent, one of the lowest among developed economies, making the franc a favored source of funding. The currency dropped 2 percent against the dollar to 1.0358.

The Mexican peso was the biggest gainer versus the dollar and the euro among the major currencies on speculation the central bank will maintain the target lending rate at 7.5 percent to control inflation, which climbed to the fastest annual pace since May 2005 in the first 15 days of April.

The peso increased 0.3 percent to 10.4406 per dollar and 1.6 percent to 16.3736 per euro.

New Zealand Dollar

The New Zealand dollar declined 1.2 percent to 78.91 U.S. cents as the Reserve Bank of New Zealand left its benchmark lending rate at a record high of 8.25 percent. Governor Alan Bollard said borrowing costs will be unchanged ``for a time yet.'' Last month, he said the rate needed to stay high for a ``significant time yet.''

The Munich-based Ifo institute said its German business climate index, based on a survey of 7,000 executives, fell to 102.4, from 104.8 in March. An index of sentiment among 4,000 French manufacturers slid to 106 from a revised 108, the Paris- based national statistics office said today.

French President Nicolas Sarkozy said in a nationally televised interview today on TF1 and France 2 that the euro has reached an ``incredible'' level against the dollar.

Euro and Oil

The euro versus the dollar has had a correlation of 0.96 with the price of crude oil over the past 12 months, according to data compiled by Bloomberg. A reading of 1 would mean they move in lockstep. Crude for June delivery rose to a record $119.90 on April 22.

``The euro and energy prices are the two primary factors contributing to the breakdown in the Ifo,'' said Michael Malpede, a senior currency analyst in Chicago at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``The euro represents a pretty significant threat to the European economy.''

European Central Bank President Jean-Claude Trichet told reporters at a conference in Frankfurt that the bank is concerned that the euro's surge to a record against the dollar may hurt Europe's economy. The euro has appreciated 7 percent this year against the dollar on speculation inflation will discourage the ECB from lowering borrowing costs from a six-year high of 4 percent.

The dollar strengthened as the Commerce Department said bookings increased 1.5 percent for goods meant to last several years, outside of cars and planes, following a 2.1 percent decline for February. Total orders fell 0.3 percent, restrained by a decrease in defense-related hardware.

The number of Americans filing first-time claims for unemployment benefits unexpectedly fell last week to a two-month low, a sign some companies have put firing plans on hold.

The euro may weaken to $1.53 after breaking below $1.5825, wrote Goldman Sachs Group Inc. analyst Kevin Edgeley in a note to clients today.

Asian currencies including the Chinese yuan are about 25 percent undervalued against the euro, and investors should look for opportunities to bet on the region's foreign-exchange rates to rise, Goldman said in a note to clients yesterday.

To contact the reporters on this story: Bo Nielsen in New York at bnielsen4@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net.