Dollar Falls to 14-Month Low Versus Euro as Risk Appetite Rises

Oct. 23 (Bloomberg) -- The dollar tumbled to a 14-month low against the euro as a recovery in corporate earnings and improved prospects for the global economy revived demand for riskier assets.

The greenback is set for a third-weekly drop against the 16-nation currency before reports today forecast to show German business confidence increased and sales of existing U.S. homes rose. The Australian and New Zealand dollars gained as regional equities extended an earnings-sparked rally in U.S. shares and on bets the nations’ will increase interest rates faster than other developed countries.

“Risk appetite is strong, buoyed by a series of better- than-expected profit reports and a brighter outlook for the global economy,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest bank. “Money will continue to shift away from the dollar, now the most-favored funding currency, and flood into higher-yielding assets.”

The dollar traded at $1.5045 per euro at 9:19 a.m. in Tokyo from $1.5033 yesterday in New York. It earlier reached $1.5047, the weakest since August 2008. The greenback rose to 91.50 yen from 91.30 yen. The euro was at 137.73 yen from 137.24 yen.

The pound rose to $1.6673 from $1.6624, after earlier hitting $1.6674, the highest since Sept. 14.

Australia’s dollar was at 92.93 U.S. cents from 92.69 cents yesterday. It climbed to 93.29 cents on Oct. 21, the highest level since August 2008. New Zealand’s dollar was at 75.93 cents, from 75.78 cents yesterday. It advanced to 76.35 cents on Oct. 21, the strongest since July 2008.

Home Sales

The greenback weakened beyond $1.50 versus the euro for the first time in February 2008 and stayed there until August 2008 after reaching $1.6038 that July. The dollar strengthened as investors sought the safety of U.S. government debt after the Sept. 15, 2008, bankruptcy of Lehman Brothers Holdings Inc. froze credit markets, with the U.S. currency reaching a 2 1/2- year high of $1.2330 on Oct. 28, 2008.

The euro headed for a third weekly gain against the yen on optimism that the 16-nation economy is on the mend.

The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 92 in October from 91.3 in the previous month, according to a Bloomberg News survey before the data release today.

European Central Bank council member Erkki Liikanen said this week on Finland’s YLE Radio Suomi that the euro area’s economy is no longer weakening.

Sales of existing homes in the U.S. rose in September to an annual rate of 5.35 million, a two-year high, from 5.1 million in the previous month, according to the median forecast of 76 economists in a Bloomberg survey. The report from the National Association of Realtors is due at 10 a.m. in Washington.

Stocks Advance

The dollar is poised for a third weekly decline against the currencies of Australia and New Zealand after the Standard & Poor’s 500 Index increased 1.1 percent yesterday as better-than- estimated earnings boosted speculation that the worst recession since the 1930s is over. The MSCI Asia Pacific Index of regional shares rose 0.5 percent today.

Profits have topped estimates at 79 percent of the companies in the S&P 500 that have released results, according to Bloomberg data. That would mark the highest proportion in data going back to 1993.

Earnings fell for a ninth-straight quarter in the July- September period, according to estimates compiled by Bloomberg, and are projected to return to growth in the final three months of the year.

New Zealand’s dollar traded near the highest since July 2008 after central bank Governor Alan Bollard said this week that a strong currency won’t impede raising borrowing costs. Policy makers meet next week and are expected by all 11 economists surveyed by Bloomberg News to leave the nation’s official cash rate unchanged.

Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.