Nov. 9 (Bloomberg) — The euro rose against the yen and the dollar after a report showed Germany’s exports climbed more than economists predicted, adding to signs the region’s economy is recovering and boosting demand for higher-yielding currencies.

The U.S. currency dropped the most versus the New Zealand dollar and Swedish krona after the Group of 20 governments agreed to maintain stimulus measures and remained silent on the dollar’s decline this year. The pound rose to the highest level in three months on speculation Kraft Foods Inc. may have to boost its 9.8 billion pound ($16.4 billion) bid for Cadbury Plc by today’s deadline to keep its takeover attempt alive.

“Overall sentiment has improved and we expect the euro to extend gains against the dollar,” said Antje Praefcke, a currency strategist at Commerzbank AG in Frankfurt. “The G-20 didn’t make any comments about recent dollar weakness, so the market continues to sell the U.S. currency.”

 

The euro advanced to 134.90 yen as of 8:35 a.m. in London, from 133.45 yen in New York on Nov. 6. The common European currency rose to $1.4969, from $1.4847, after climbing to as high as $1.4982, the strongest level since Oct. 26. The greenback traded at 90.12 yen, from 89.88 yen. The pound jumped to $1.68 versus the dollar, the highest level since Aug. 7.

Exports from Germany, the euro-region’s largest economy, rose 3.8 percent in September from August, when they fell 2.8 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 2.5 percent, the median of 13 forecasts in a Bloomberg survey showed. Exports still declined 18.8 percent from a year earlier.

Euro Zone

The euro strengthened as a Bloomberg survey of economists showed German industrial output probably expanded 1 percent in September, a second month of gains. A separate survey showed an index of European investor confidence improved to minus 12 in November, the highest level since July 2008. Both reports are scheduled for release today.

“The euro-zone economy is performing better than economies in the U.S. and Japan,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Interest-rate differentials are also in favor of the euro.”

The yield advantage of 10-year German bunds over the similar-maturity Japanese government debt was 1.89 percentage points today, from 1.85 percentage points a week ago.

‘Maintain Support’

The dollar dropped after Alistair Darling, hosting in the U.K. a meeting of finance ministers from G-20 nations, said his colleagues decided to keep supporting their economies.

“We agreed to maintain support for the recovery until it is assured,” Darling said Nov. 7. “We are not out of the woods yet.”

New Zealand’s currency advanced against all 16 major counterparts after Fonterra Cooperative Group Ltd. said today it will probably pay its 10,500 farmer-shareholders NZ$6.05 ($4.46) for each kilogram of milk supplied in the year to May 31. That would be the second-highest since Fonterra paid a record NZ$7.90 a kilogram in the year ended May 2008.

Fonterra accounts for about 40 percent of the global trade in butter, milk powder and cheese and sells products in more than 140 countries.

“Dairy prices are one of the fundamental drivers of the New Zealand dollar so with that on board we’ll see more support for the kiwi this week,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The market still has a hike in there by March next year, which is quite a bit sooner than what the Reserve Bank outlined in their most recent statement. This is further fuel to the fire.”

Carry Trades

The New Zealand currency rose 1.6 percent to 73.67 U.S. cents, the most since Oct. 28. It gained 1.9 percent to 66.39 yen.

The U.S. currency also dropped after the International Monetary Fund said traders are probably using the dollar to fund so-called carry trades around the world and it may still be overvalued.

The IMF said in a report published on Nov. 7 that while the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.” The Federal Reserve last week repeated its intention to leave borrowing costs “exceptionally low” for “an extended period” as long as inflation expectations are stable and unemployment fails to decline.

Rate Expectations

“The dollar was hurt by the IMF’s observation,” John Kyriakopoulos, head of currency strategy in Sydney at National Australia Bank Ltd., wrote in a research note. “With the Fed implying it will keep rates very low until the unemployment rate starts falling, traders continued to pare expectations for rate hikes in 2010, which is weighing on the dollar.”

The U.S. currency has dropped against 15 of 16 major counterparts in the past six months as investors increased carry trades, where they borrow in countries with low interest rates to invest in higher-yielding assets.

The greenback’s decline helped push the price of gold to an all-time high of $1,108.43 an ounce today, as demand increased for the precious metal as a store of value.

Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S., compared with 3.5 percent in Australia and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.

Trade Deficit

The dollar may fall further as economists forecast the trade deficit in the U.S. probably widened in September, reflecting growing demand for foreign oil and automobiles.

The gap between imports and exports increased to $31.8 billion from $30.7 billion the prior month, according to the median of 60 estimates in a Bloomberg News survey ahead of the Commerce Department’s Nov. 13 report.

Chinese Premier Wen Jiabao called on the U.S. to keep its deficit at an “appropriate size,” saying that it would be conducive to stability and global economic recovery, Reuters reported.

The Dollar Index, which the ICE uses to track the currency against those of six major U.S. trading partners, fell to 75.214, from 75.819 on Nov. 6. The index earlier today touched 75.152, the lowest since Oct. 23.