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Wed 4 Jan 2012 12:53 PM

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Dollar approaches one-week low against Euro

Greenback weakened versus all of its most-traded counterparts on Tuesday amid US growth signs

Dollar approaches one-week low against Euro
US currency weakened versus all of its most-traded counterparts

The dollar approached a one-week low versus the euro before US reports that economists said will show factory orders increases and services industries expanded, damping demand for safer assets.

The US currency weakened versus all of its most-traded counterparts on Tuesday as reports this week showed factory output in the US and China improved in December, suggesting manufacturing is weathering strains from Europe’s debt crisis. The Indonesian rupiah weakened for a third day versus the dollar on speculation the central bank will cut interest rates to support the economy.

“We are in a situation where stronger US data does lead to risk appetite elsewhere and definitely to a weaker US dollar,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The global economy is a lot better than people were expecting.”

The dollar fell 0.1 percent to $1.3060 per euro at 8:31 a.m. in London after dropping to $1.3077 on Tuesday, the weakest since Dec. 28. The US currency dropped 0.1 percent to 76.64 yen. The euro was little changed at 100.09 yen.

Bookings for US factory goods climbed 2 percent in November after dropping 0.4 percent the previous month, according to a Bloomberg survey before today’s Commerce Department report. Service industries grew in December at the fastest pace in three months, a separate Bloomberg survey showed before data tomorrow from the Institute for Supply Management.

The ISM’s factory index expanded at the fastest pace in six months, the group said on Tuesday. China’s purchasing managers’ index for manufacturing increased to 50.3 last month from 49 in November, the logistics federation said Jan. 1.

Federal Reserve officials said they will start announcing their own predictions for the central bank’s key interest rate, according to minutes from last month’s Federal Open Market Committee meeting released on Tuesday.

By releasing their forecasts, central bankers are likely to alter expectations for the timing of the first increase in their benchmark rate, which has been kept near zero since December 2008. Last month, Fed officials repeated their view that economic conditions would warrant “exceptionally low levels for the federal funds rate at least through mid-2013.”

The dollar has fallen 1.6 percent in the past week, the worst-performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback gained 1.1 percent last year, snapping two years of declines.

Gains in the euro were tempered before a European report forecast to show services and manufacturing output contracted for a fourth month in December.

The figures from London-based Markit Economics are expected to confirm a euro-area composite index based on a survey of purchasing managers rose to 47.9 in December from 47 in November, below the 50 level that delineates contraction and expansion.

European inflation slowed from the fastest in three years in December, a report today is predicted to show according to a separate Bloomberg survey. The inflation rate in the euro area fell to 2.8 percent in December from 3 percent in the previous month, the European Union statistics office is forecast to say.

“The underlying problems are going to remain and will likely generate an orderly depreciation of euro,” said Richard Grace, the chief currency strategist and head of international economics at Commonwealth Bank of Australia in Sydney.

The currency will fall to $1.27 by June, Grace said. The euro will decline to $1.28 by the second quarter, according to the median forecast of analysts surveyed by Bloomberg.

The European Financial Stability Facility plans to raise €3bn from a sale of three-year bonds to help finance the bailouts of Ireland and Portugal, it said in an e-mailed statement on Tuesday. The fund is targeting Jan. 5 for the offering, a person with knowledge of the matter said.

The plan comes after Standard & Poor’s said Dec. 6 the European Union’s bailout fund may lose its AAA rating.

“It appears that the market is quite short euro at the moment, so a successful bond auction could have the euro spike higher, but there would be a lot of sellers into the rally,” Commonwealth Bank’s Grace said.

The rupiah dropped for a third day against the dollar on speculation a slowdown in Indonesia’s inflation will prompt the central bank to lower borrowing costs at its Jan. 12 meeting.

Consumer prices rose 3.79 percent in December from a year earlier after increasing 4.15 percent the previous month, the Central Bureau of Statistics said Jan. 2. Bank Indonesia Governor Darmin Nasution left the benchmark rate at 6 percent last month.

“The inflation numbers may be indicating that Bank Indonesia may cut the interest rate again,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore.

The rupiah weakened 0.4 percent to 9,173 per dollar.