Dollar Trades Near Three-Month High on U.S. Economy Optimism

Dec. 21 (Bloomberg) -- The dollar traded near a three-month high against the euro as signs that the world’s largest economy is gaining traction and lingering credit concerns in Europe buoyed demand for the greenback.

The U.S. currency may extend its biggest weekly rally since June against its major counterparts before reports this week forecast to show increasing sales of existing homes and new homes in the U.S. The 16-nation euro dropped for a fourth day against the Swiss franc after the European Central Bank raised its estimate for writedowns in nations using the single currency by 13 percent.

“Further improvement of the U.S. economic data may give an impetus to buy the dollar,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “The sustained recovery may enhance views that the Federal Reserve may bring forward an exit from stimulus measures.”

The dollar traded at $1.4324 per euro as of 8:47 a.m. in Tokyo from $1.4338 in New York on Dec. 18 when it hit 1.4262, the strongest level since Sept. 4. The yen was at 129.56 per euro from 129.75 last week. The U.S. currency was at 90.45 yen from 90.49 yen in New York. The euro fell to 1.4901 Swiss francs from 1.4950 last week.

The National Association of Realtors will report Dec. 22 that purchases of existing homes rose 2.5 percent in November to an annual pace of 6.25 million, the highest level since February 2007, according to a Bloomberg News survey of economists. The Commerce Department on Dec. 23 will report sales of new homes rose 1.9 percent to a 438,000 annual pace last month, the fastest since August 2008, according to a separate survey.

Futures Positions

Futures traders increased their bets that the euro will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 16,448 on Dec. 15, compared with net shorts of 511 a week earlier.

The Dollar Index, which the ICE futures exchange uses to track the greenback against the euro, yen, pound, franc, Canadian dollar and Swedish krona, rose 1.6 percent to 77.821 last week, the biggest rally since the five days ended June 5. The index touched 78.141 on Dec. 18, the highest level since Sept. 4.

The gauge of the dollar has appreciated 4 percent from this year’s weakest level reached on Nov. 26 as government figures showed the U.S. unemployment rate fell last month to 10 percent and retail sales rose more than forecast.

Before a U.S. payrolls report on Dec. 4, the greenback had fallen 20 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars.

Credit Worries

The euro weakened versus the dollar last week as the European Central Bank said lenders may have to write down an additional 187 billion euros ($268 billion) as loans to property companies and eastern European nations threaten the financial recovery.

Greece’s credit rating was cut by Standard & Poor’s, and the company said it may take further action unless Prime Minister George Papandreou tackles the European Union’s largest budget deficit.

Greek Finance Minister George Papaconstantinou said he doesn’t rule out Moody’s Investors Service cutting the country’s credit rating, El Pais reported.

“It is possible we have a downgrade from Moody’s,” Papaconstantinou said in the interview with the Madrid-based newspaper. “I don’t exclude it.”

The euro dropped last week against the Switzerland currency as the Swiss National Bank refrained from selling the currency, pushing it beyond 1.50 for the first time since a rally in March that led to an intervention.

The central bank changed its language on currency purchases this month, saying it will act to counter “any excessive” moves in the franc against the euro. At its September assessment, the bank said it would “continue to act decisively” to prevent “any” appreciation.

The franc tumbled 3.3 percent against the euro on March 12, the largest drop since the common currency debuted in 1999, when the Swiss National Bank intervened to prevent a strengthening currency from undermining the economy.

Nicolas Haymoz, a spokesman for the Swiss National Bank in Zurich, said “we don’t comment on movements in the Swiss franc.”