Euro Hits 13-Month High Against Dollar - Wall Street Journal

The euro rose to a 14-month high against the dollar Wednesday, helped by signs banks may be less reliant on funds from the European Central Bank. Stocks, particularly in Italy, were pressured by oil-sector weakness.

The euro rose to $1.3563. There was a small takeup of the ECB's liquidity mechanism, with just €3.71 billion ($5 billion) allotted against market expectations of €15 billion to €20 billion. This suggests the region's banks are weaning themselves off central bank support.

The euro hit a 32-month high of ¥123.67 and traded above £0.86 for the first time since December 2011. It moved above A$1.30 for the first time since May 2012. The common currency rose to an intraday high against the Swiss Franc after Switzerland's main economic confidence indicator continued to deteriorate in January.

The euro has been in demand for much of the year, with Wednesday's climb in the European Commission's euro-zone confidence index the latest sentiment release suggesting business leaders and consumers see the economic gloom lifting. On Tuesday, Jose Barroso, president of the European Commission, stated that the "worst of the euro-area crisis is over."

Dow Jones's Paul Hannon looks at the continued divergence in euro-zone economies despite the slight improvement so far this year. With the euro also rising, he questions the strength of a future recovery.

Moves elsewhere were muted ahead of the U.S. ADP employment report and preliminary fourth-quarter economic growth data. Also in focus is the Federal Reserve's policy announcement due after European markets close.

"Investors [are choosing] to sit on their hands due to the wave of economic data coming their way throughout the course of the day," said Mike McCudden, head of derivatives at stockbroker Interactive Investor. Poor U.S. consumer confidence figures on Tuesday bolstered investor confidence that the Fed would renew its commitment to asset purchases and triggered buying, he said.

Still, markets are looking overbought and investors should be cautious because of the possibility of a sharp correction, McCudden said.

U.S. stock futures drifted, while Treasury bills declined ahead of the announcements.

Italian manufacturing confidence unexpectedly fell in January, eroding sentiment. The country's benchmark equity index underperformed the region as Milan-listed Saipem tumbled 35%. The energy engineering services provider said late Tuesday it expects to deliver lower earnings in 2012 and 2013 than previously anticipated.

Oil and gas stocks fell across Europe as a result.

Nordea AB shares rose after the Swedish bank proposed a raised dividend for 2012 and reported a stronger-than-expected increase in fourth-quarter net profit.

Hennes & Mauritz shares fell after its full-year trading update disappointed, with fourth-quarter operating profit lagging consensus.

Italy's borrowing costs continued to fall. It sold a maximum targeted €6.5 billion euros ($8.8 billion) of bonds at an auction. Demand was tepid. Germany attracted solid demand at an auction of its longest-dated debt, its July 2044 Bund, with a rising yield attracting some new buyers.

Write to Nina Bains at nina.bains@dowjones.com

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