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Old 06-06-2013, 05:42 PM
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Default Euro Rises to One-Month High as Draghi Says Economy Will Recover

By Emma Charlton - Jun 6, 2013 11:05 AM ET
The euro strengthened to a one-month high against the dollar as European Central Bank President Mario Draghi said the region’s economy should recover this year.
The 17-nation currency rose against most of its major peers after the ECB refrained from cutting its main refinancing rate at a monthly policy meeting and Draghi also said there was no need to introduce additional stimulus measures at this stage. The pound gained versus the dollar as the Bank of England kept its asset-purchase target and benchmark rate unchanged. The Australian dollar slid to the weakest since 2011 as the nation’s shrinking interest-rate advantage reduced the currency’s allure.
“Draghi is painting a better picture than last time,”said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “That makes it less likely that they will cut rates. Draghi mentioned that they don’t need to use all the tools yet, that’s positive for the euro.”
The euro rose 0.8 percent to $1.3194 at 10:56 a.m. New Yorktime, reaching its strongest level since May 2. The single currency gained 0.1 percent to 129.76 yen. The yen rallied 0.7 percent to 98.35 per dollar and touched the strongest level since May 3.
The ECB kept its benchmark rate at 0.5 percent in line with the predictions of all except two of 59 economists surveyed byBloomberg News. Morgan Stanley & Co. and IHS Global Insight were the only institutions predicting a quarter-point reduction.
Benchmark Rate

“Recent developments in economic sentiment data have shown some improvements,” Draghi said at a press conference in Frankfurt after the rate decision was announced. “Overall, economic activity should stabilize and recover over the course of the year.”
The ECB cut its growth forecast for this year, predicting the economy will shrink 0.6 percent. Policy makers raised their 2014 forecast to show growth of 1.1 percent.
The euro has strengthened 3.9 percent this year, the best performance after the dollar among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback gained 4.3 percent and the yen slid 10 percent.
The pound advanced for a second day against the dollar as a Halifax report showed British house prices increased for a fourth month in May, adding to signs the economy is recovering.
Bank of England policy makers kept their key interest rate at 0.5 percent and their target for bond purchases at 375 billion pounds ($580 billion) at their meeting in London.
‘Bit Stronger’

“I probably will tweak my sterling forecasts just to make them a bit stronger by the end of the year on the back of the data that we’ve seen,” said Jane Foley, senior currency strategist at Rabobank International in London. “Everybody anticipated that it would be a fairly non-event meeting today”from the Bank of England.
The pound climbed 0.7 percent to $1.5512 after rising to the highest level since May 9.
Australia’s dollar fell for a third day versus the greenback as Insight Investment Management Ltd., which oversees about $134 billion in fixed income and currencies, said yesterday it has been selling the currency as the yield spread between the nation’s sovereign debt and its global peers narrowed by almost half a percentage point since March.
The so-called Aussie declined 0.2 percent to 95.27 U.S. cents after dropping to 94.35 cents, the weakest level since October 2011.
The Australian dollar “is the clear underperformer in the G-10,” Morgan Stanley strategists led by Hans Redeker, global head of currency strategy in London, wrote in an e-mailed note.“Further significant downward pressure is now likely to build,” he said.
Investors should sell the currency, betting it will weaken to 92.50 U.S. cents, Morgan Stanley recommended. The Australian dollar last traded at that level in 2010.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story:Paul Dobson at pdobson2@bloomberg.net.
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