Euro Touches Five-Month High; German Confidence Gains

The euro touched its highest against the dollar since June as business confidence in Germany, Europe's largest economy, unexpectedly advanced to a 15-year high.

The Ifo institute's sentiment index climbed this month after exports surged and corporate investment increased. The European Central Bank policy maker, Miguel Angel Fernandez Ordonez, said today he sees further signs of inflation, suggesting interest rates will push higher into 2007. The euro has gained 2.1% against the dollar since the ECB raised rates last month.

"The Ifo numbers were very encouraging," head of currency research in London at ING Groep NV, the largest Dutch financial-services company, Chris Turner, said. "The ECB will stay hawkish. The sentiment on the euro is very positive indeed."

The currency traded at $1.2948 at 4:37 p.m. in London, from $1.2942 late yesterday in New York. Trading may be less than usual today due to public holidays in America and Japan.

The dollar also slid against the yen to the weakest in almost two months as rising jobless claims and a drop in consumer confidence suggested the Federal Reserve will cut rates.

Traders have increased bets American policy makers will reduce borrowing costs by March as inflation abates.

"The trend is for a weaker dollar," a currency strategist at ABN Amro Holding NV in Sydney, Greg Gibbs, said. "The recent tide of softer activity and inflation figures are consistent with the argument that we're overdue a more sustained period of U.S. dollar weakness." It will decline to $1.30 a euro and 115 yen by year-end, Mr. Gibbs, said.

The American currency traded at 116.14 yen, from 116.74.

Fed Bank of St. Louis President William Poole said in an interview yesterday that data suggest inflation is "leveling off or declining." Initial jobless claims rose by 12,000 to 321,000 in the week ended November 18, a report yesterday showed. A cut in American rates would help reduce the extra yield that investors earn on dollar-enominated debt over the currencies of Japan, Switzerland, and Sweden, where borrowing costs are lower.