Oct. 14 (Bloomberg) -- The dollar had the biggest one-day gain against the yen in 3 1/2 months and rose versus the euro in London on speculation U.S. retail sales and manufacturing reports tomorrow will add to signs the world's largest economy is expanding. ``Reports on the stronger side will support the dollar,'' said Michael Derks, London-based chief global strategist at Commonwealth Bank of Australia, the country's biggest bank. He said the dollar may gain to $1.14 to the euro in coming weeks. An acceleration in U.S. growth may help reverse the dollar's 2.2 percent loss against the euro and 3.7 percent drop versus the yen since Group of Seven finance ministers called for more flexible exchange rates on Sept. 20. Retail sales excluding autos rose in September for a fifth month while New York manufacturing expanded for a sixth month, economists expect reports tomorrow to show.
The dollar rose to 109.82 yen at 7:43 a.m. in London from 108.93 in London yesterday. It climbed to $1.1616 per euro from $1.1685. Earlier, the dollar reached $1.1585 per euro, the highest against the 12-nation currency since Oct. 6. U.S. retail sales excluding autos rose 0.4 percent in September after gaining 0.7 percent in the previous month, according to the median forecast of 66 economists surveyed by Bloomberg News. A separate survey shows that the Federal Reserve Bank of New York may say its index of regional manufacturing will register at 16 in October, compared with 18.35 in September. Readings greater than zero signal manufacturing is improving.
Goldman Forecast
Goldman Sachs Group Inc. yesterday increased its forecast for third-quarter U.S. economic growth to 6.5 percent, the fastest in almost four years, from 5 percent and affirmed its estimate for 4 percent growth in the fourth quarter. UBS AG, Europe's biggest bank by assets, has lifted its third quarter growth forecast to an annual 5.5 percent from 4.5 percent. U.S. economic growth will slow to 3.7 percent in the final three months of the year as household spending cools, according to the consensus estimate of 53 economists surveyed by Blue Chip Economic Indicators released Friday.
The U.S. must attract $1.5 billion a day in foreign investment to finance the shortfall in the current account, the broadest measure of international trade and investment. The deficit widened to a record $138.7 billion in the second quarter, or 5.1 percent of gross domestic product. ``The Europeans know that the dollar broadly needs to'' weaken, said Allison Montgomery, currency strategist in Sydney at Westpac Banking Corp. Central bank officials ``want to make sure that this adjustment is orderly and doesn't run ahead of itself.''
Adjustments
Westpac, Australia's third-largest lender, shared the top spot among 56 companies surveyed by Bloomberg News in predicting the euro-dollar rate in the third quarter. The dollar also gained after European Central Bank officials signaled concern about recent currency movements. The euro rose as much as 4.3 percent after the Group of Seven industrialized nations called for more flexible exchange rates Sept. 20. ``Abrupt foreign exchange adjustments can push the world economy into a crisis,'' ECB council member and German Bundesbank President Ernst Welteke said yesterday in Frankfurt. The euro strengthened 8.4 percent from the beginning of the year through the start of the G-7 meeting. ECB President Wim Duisenberg yesterday said that traders and investors may have ``misunderstood'' last month's G-7 communique.
`Burden Sharing'
``The G-7 statement was meant to plead for a more even burden- sharing among many currencies of the adjustment that might occur in the relations between the dollar and all other currencies,'' Duisenberg said. The comment ``implies that the focus of the G-7 statement should be on Asian currencies strengthening,'' said Nobuyuki Kuroiwa, head of foreign exchange trading in Tokyo at Citigroup Inc., ranked the second-biggest trader in the daily $1.2 trillion currency market by Euromoney magazine. ``The result was a selling of euros and buying of yen.'' The euro, which dropped to 126.72 yen from 127.51 yen, may fall to 125.50 yen this week, Kuroiwa said. Any gain in the dollar against the yen may be limited on speculation President George W. Bush will urge Japan to curb its currency sales when he visits Tokyo this week.
The Japanese currency yesterday rose to a level matching the 34-month high of 108.31 per dollar touched on Friday. Japan sold more than 13.5 trillion yen ($123.9 billion) this year to stem gains that may cut exporters' earnings and slow economic growth. Bush meets Prime Minister Junichiro Koizumi on Friday.
Economic Research
The euro's decline against the dollar and yen may also be limited on speculation a report today will probably show German investor confidence rose for a 10th month in October, the longest period of gains in a decade. An index measuring investors' economic growth expectations rose to 63 from September's 60.9, the ZEW Center for European Economic Research's survey of about 300 analysts and institutional investors will probably say, according to the median of 26 forecasts in a Bloomberg News survey. Japan's currency also weakened against the dollar on speculation among some traders the authorities won't allow its currency to strengthen further. ``There is still a concern Japan may sell especially when the dollar falls below 109 yen,'' said Shohgo Nagaya, foreign exchange manager in Tokyo at Nomura Trust and Banking Co., a unit of Japan's biggest brokerage. The dollar may rise to as much as 109.50 yen today, he said. //www.bloomberg.com