* Euro hovers below two-year high vs dollar after soft
German Ifo data
* Common currency still on course for gains against a weak
* Dollar rises from two-week low versus yen
* Speculators decrease bets in favor of dollar in latest
By Julie Haviv
NEW YORK, Oct 25 (Reuters) - The euro rose against the
dollar on Friday, hovering close to a two-year high, as souring
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 the recent soft euro zone data. That should keep
the euro well bid, at least against the dollar, he added.
Next week investors will focus on a Fed policy meeting. The
central bank will likely signal it will keep the current size of
its bond-purchase stimulus, a negative for the dollar.
After a 16-day shutdown earlier this month, the government
is catching up on issuing a backlog of economic data.
The data so far has largely supported the stance that the
U.S. central bank should not change its current bond-purchase
stimulus, called quantitative easing, to support an economic
recovery that has slowed since late summer.
Economists expect Fed policymakers will decide to maintain
their $85 billion monthly purchases of Treasuries and
mortgage-backed securities when they meet next Tuesday and
Wednesday. They projected the Fed would keep this pace of buying
In late afternoon New York trading, the euro was up
up 0.1 percent at $1.3808, not far from an earlier peak of
$1.3832, its highest since November 2011.
The euro is poised to end the week up nearly 0.9 percent,
marking its second straight weekly gain. It has risen 2.1
percent month-to-date, with its annual gain at 4.6 percent.
Currency speculators decreased their bets in favor of the
U.S. dollar to the lowest level since February in the week ended
Oct. 1, according to data from the Commodity Futures Trading
Commission released on Friday.
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 134.48 yen
The dollar was flat against a basket of six major currencies
at 79.178, 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 from 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 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.
The dollar last traded up 0.1 percent at 97.38 yen,
off a two-week low of 96.92 yen, according to Reuters data.