* Euro hovers below two-year high vs dollar after soft
German Ifo data
* Common currency still on course for gains against a weak
By Julie Haviv
NEW YORK, Oct 25 (Reuters) - The euro hovered close to a
two-year high against the dollar on Friday as a souring of
German business morale did little to dent bullish sentiment
toward the euro zone common currency.
German Ifo business sentiment data fell unexpectedly for the
first time in six months, sparking concern about the impact of a
stronger euro on the region's exporters.
That followed sub-forecast euro zone private sector activity
surveys on Thursday, suggesting that recovery in the euro zone
Still, the euro's fall was minimal and many analysts say it
could rise toward $1.40 as investors seek alternatives to a
dollar hobbled by expectations the Federal Reserve will maintain
its current level of monetary stimulus.
"Traders continue to make the euro their favorite
anti-dollar trade in light of expectations the Fed will continue
its QE (quantitative easing) program well into the start of next
year," said Boris Schlossberg, managing director of FX strategy
at BK Asset Management in New York.
In contrast, Schlossberg noted that market participants do
not expect any change in the European Central Bank's monetary
policy despite recent the soft euro zone data. That should keep
the euro well bid, at least against the dollar, he added.
In afternoon New York trading, the euro was unchanged
at $1.3804, not far from an earlier peak of $1.3833, its highest
since November 2011.
The euro, at current prices, is up nearly 0.9 percent on the
week, its second straight weekly gain. It has risen 2.1 percent
month to date, with its annual gain at 4.6 percent.
Technical analysts said the euro faced stiff resistance at
Friday's $1.3833 peak, the 61.8 percent retracement of the
currency's fall between May 2011 and July 2012.
"The euro is due for a short-term correction and could drop
towards $1.3720," said Hans Redeker, head of global foreign
exchange strategy at Morgan Stanley. "But by the first week of
December it could be as high as $1.42."
He expected the euro to be one of the main beneficiaries of
a weaker dollar, and as euro zone banks sell assets to foreign
investors to shrink their balance sheets in preparation for an
ECB asset quality review.
Some euro zone officials have shown no concern about a
strong euro. ECB Executive Board member Joerg Asmussen was
quoted on Friday as saying the ECB is not concerned about the
level of the euro.
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington, however, thinks the ECB's tune on a
strong euro could change at some point.
"Euro zone officials are unlikely to sit idly while a rise
in the euro threatens to derail a fragile economic rebound,"
said Esiner. "Increased vocal opposition to euro strength by
policymakers will further limit the currency's gains."
Against the yen, the euro was up 0.2 percent at 134.42 yen
The dollar was flat against a currency basket of six major
currencies at 79.208, off a near nine-month low of
78.998. The dollar index's composition is dominated by the euro.
Economists reckon this month's 16-day U.S. government
shutdown shaved as much as 0.6 percentage point off annualized
fourth-quarter gross domestic product through reduced government
output and damage to consumer and business confidence.
However, some analysts said the euro could be vulnerable to
signs the euro zone's tentative recovery is losing steam,
especially with a strong euro seen hurting the region's
exporters. The euro's trade-weighted index was at
a two-year high.
The dollar was up 0.1 percent against the yen at 97.38 yen
, off a two-week low of 96.94 and above its 200-day moving
average, a key chart level, at 97.34, suggesting room for more
The dollar slightly pared gains versus the yen after the
Japan Meteorological Agency issued a 'yellow' warning early on
Saturday morning, Japan time, that a small tsunami would reach
the Japanese coast at Fukushima, site of a wrecked nuclear power
plant, after the U.S. Geological Survey reported a 7.6 magnitude
quake 231 miles to the east.