Dollar near 1-week low versus Euro on growth signs

The dollar traded 0.3 percent from its lowest level in a week versus the euro before U.S. reports that economists said will show factory orders increased and service industries expanded, damping demand for safer assets.

The euro pared earlier gains after a European report showed services and manufacturing output shrank for a fourth month in December, fueling concern the debt crisis will slow the region’s growth. The Hungarian forint weakened to a record against the euro on speculation talks between the government and the European Union over financial aid will be delayed.

“We are in a situation where stronger U.S. data does lead to risk appetite elsewhere and definitely to a weaker U.S. dollar,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “The global economy is a lot better than people were expecting.”

The dollar was little changed at $1.3039 per euro at 10:11 a.m. in London after dropping to $1.3077 yesterday, the weakest level since Dec. 28. The U.S. currency declined 0.1 percent to 76.63 yen. The euro slipped 0.2 percent to 99.95 yen. It fell to 98.66 yen on Jan. 2, the weakest since December 2001.

Bookings for U.S. factory goods climbed 2 percent in November after dropping 0.4 percent the previous month, according to a Bloomberg survey before today’s Commerce Department report. Service industries grew in December at the fastest pace in three months, a separate Bloomberg survey showed before data tomorrow from the Institute for Supply Management.

Factory index

The ISM’s factory index expanded at the fastest pace in six months, the group said yesterday. China’s purchasing managers’ index for manufacturing increased to 50.3 last month from 49 in November, the logistics federation said Jan. 1.

Federal Reserve officials said they will start announcing their own predictions for the central bank’s key interest rate, according to minutes of last month’s policy meeting released yesterday. By releasing their forecasts, central bankers are likely to alter expectations for the timing of the first increase in their benchmark rate, which has been kept near zero since December 2008.

The dollar has fallen 1.4 percent in the past week, the worst-performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback gained 1.1 percent last year, snapping two years of declines.

‘Under pressure’

Gains in the euro were tempered after London-based Markit Economics said a euro-area composite index based on a survey of purchasing managers was 48.3 in December compared with 47 in November. The gauge stayed below the 50 level that delineates contraction and expansion for a fourth month.

“Disappointing data put the euro under pressure,” said You-Na Park, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “The market is reacting to data releases.”

European inflation slowed from the fastest in three years in December, a report today showed. The inflation rate in the euro area fell to 2.8 percent in December from 3 percent in the previous month, the European Union statistics office said.

“The underlying problems are going to remain and will likely generate an orderly depreciation of euro,” said Richard Grace, the chief currency strategist and head of international economics at Commonwealth Bank of Australia in Sydney.

The currency will fall to $1.27 by June, Grace said. The euro will decline to $1.28 by the second quarter, according to the median forecast of analysts surveyed by Bloomberg.

Forint falls

The forint dropped for a second day against the euro on concern a resumption in talks with the International Monetary Fund and the EU on financial assistance will be delayed.

Hungary, the EU’s most-indebted eastern member, received its second sovereign-credit downgrade to junk last month when Standard & Poor’s followed Moody’s Investors Service in taking the country out of its investment-grade category on Dec. 21.

“There is an increased likelihood that the IMF deal will not happen before the second half of 2012,” Eszter Gargyan, a Budapest-based economist at Citigroup Inc., wrote in a research report today. A delay in the IMF talks may necessitate rate increases of as much as 300 basis points from the current 7 percent rate to defend the forint, Gargyan said.

The forint dropped 0.9 percent to 319.15 per euro after falling to a record 319.50.