Tokyo, May 7 (Bloomberg) -- The dollar rose from its lowest in more than four years against the euro on analysts' expectations German unemployment probably increased for a 13th month in April, dimming the appeal of European assets. ``Europe's economy isn't exactly racing forward, which will limit the euro's rise somewhat,'' said Robert Rennie, currency strategist at Westpac Banking Corp. in Sydney. The U.S. currency was at $1.1418 per euro at 1:48 p.m. in Tokyo, from $1.1438 late in New York late yesterday, when it fell 1.3 percent to its weakest since January 1999. The 12-nation European currency has risen almost 25 percent against the dollar in the past year. The dollar was also at 117.71 yen, from 117.57 yen, and may rise on concern Japan will sell its currency to stem an 8 percent gain in the past year.
There are signs the euro's rally may end, based on the 14-day relative strength index, a measure of investor sentiment derived by averaging out daily gains and losses over a set period. The index was at 77.93, with a level above 70 signaling a security or currency's price may be poised to reverse course. Speculators boosted futures bets on euro gains for a fifth week, according to data released Friday by the Commodity Futures Trading Commission. Traders last week held a net 28,005 euro futures contracts that gain in value as the currency strengthens, the most in seven weeks, CFTC data showed.
Speculators
With more speculators piling into a bet on the euro, it increases the potential amount of selling in the event reports show the U.S. economy is stronger or the European economy weaker than anticipated, analysts said. ``It may be largely a speculative move'' that has driven the dollar down against the euro, said Michael Woolfolk, currency strategist at Bank of New York, which holds $6.8 trillion in assets. ``Speculative accounts will jump on a trend and push it as far as it will go, and then'' sell, he said. Woolfolk sees the potential for a rebound in the dollar to $1.11 in the event those speculators dump their euros. The number of Germans out of work in April rose a seasonally adjusted 40,000 from March, according to the median forecast of 23 economists surveyed by Bloomberg News, while the unemployment rate in Europe's largest economy probably increased to 10.7 percent from 10.6 percent, they said. German's Federal Labor office will release the report today.
Fed May Cut
The dollar still may extend its decline against the euro after the Federal Reserve yesterday hinted it may lower interest rates in coming months, dimming the appeal of U.S. assets and making it difficult to attract enough global capital to fund a record current account gap. The Fed warned of the risk of an ``unwelcome substantial fall in inflation'' and kept its target rate at a 41-year low of 1.25 percent, half that of the 12-nation euro region. ``The dollar is continuing on its downward spiral,'' said David Mozina, New York-based head of foreign exchange strategy for the 10 major industrialized nations at Bank of America, in a note to clients. ``Interest rates at over 40-year lows, a current account deficit of above 5 percent of gross domestic product and shaky U.S. economic releases are plaguing the dollar.'' Bank of America forecasts the dollar weakening to $1.1650 per euro in the next six months. The U.S. needs $1.5 billion a day in overseas capital to offset the deficit in its current account, the broadest measure of trade. Europe and Japan have current account surpluses. The yield on the fed funds futures contract for June is 1.195 percent, showing traders expect the central bank will cut rates a quarter percentage point at its June 25 meeting. The European Central Bank will probably keep its key rate at 2.5 percent at a policy meeting tomorrow, according to 33 of 35 economists surveyed by Bloomberg News.
Mizoguchi
The dollar may also strengthen against the yen after Zembei Mizoguchi, vice finance minister for international affairs, signaled Japan might sell its currency. ``We are watching the foreign exchange market closely and will take appropriate action as necessary,'' Mizoguchi said. The Bank of Japan sold 2.4 trillion yen ($20.4 billion) in the first three months of the year. A strong yen may hurt exports, which account for 11 percent of the nation's economy, by making Japanese goods more expensive, reducing sales and profits abroad. ``The likelihood of BOJ selling has increased with the dollar at these levels,'' said Masamichi Koike, senior vice president for foreign exchange at Sumitomo Mitsui Banking Corp. The yen may fall to 118.00 today, he said. In other trading, the dollar is at 1.3255 Swiss francs, from 1.3246 francs. The British pound was at $1.6144, from $1.6157. The yen held at 134.44 per euro. //www.bloomberg.com