Euro Drops on French Election; Australian Dollar Declines
Monday, 23 April 2012 | 14:30
The euro fell for the first time in five days against the yen amid concern the outcome of French presidential elections and bets Dutch government turmoil will disrupt efforts to stem the debt crisis.
Australia’s dollar slid after a report showed the nation’s producer prices fell last quarter, adding to speculation the Reserve Bank will cut interest rates. The yen rose at least 0.5 percent against all of its major peers as France’s Socialist challenger Francois Hollande won more of the first-round ballot than incumbent Nicolas Sarkozy, boosting demand for haven assets. The anti-euro National Front, led by Marine Le Pen, came third, winning a record number of votes for the far-right party.
“The results of the French election point to a narrow lead by Hollande, but an increase in support for the far-right political party suggests that negative-Europe sentiment may intensify,” said Michael Sneyd, a currency strategist for BNP Paribas in London. “This is likely to weigh heavily on the euro over the weeks ahead.”
The euro weakened 1.2 percent to 106.55 yen at 10:31 a.m. London time. It dropped 0.5 percent to $1.3151. The yen strengthened 0.6 percent to 81 per dollar.
Pressure on Sarkozy
Hollande won 28.5 percent of the vote against 27.1 percent for Sarkozy yesterday, the interior ministry said in Paris. The National Front got 18.1 percent of the vote, adding to pressure on Sarkozy to court Le Pen supporters. The second ballot takes place on May 6.
In the Netherlands, Prime Minister Mark Rutte will meet his cabinet today to discuss a strategy for passing a budget that meets European Union targets. Early elections will probably be called after Geert Wilders’s Freedom Party withdrew its support for the minority government on April 21.
Dutch 10-year bonds fell, driving the yield difference to German bunds to a three-year high.
Futures traders increased their bets that the euro will decline against the U.S. dollar for a second week, figures from the Washington-based Commodity Futures Trading Commission show.
The 17-nation shared currency stayed weaker after London- based Markit Economics said today a euro-area composite index based on a survey of manufacturing and services purchasing managers dropped to 47.4 from 49.1 in March. The median estimate of 17 economists surveyed by Bloomberg News called for a reading of 49.3. A reading below 50 indicates contraction.
“The disappointing PMIs out this morning are catching the headlines and setting a soft start to the week for the euro,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Chase & Co.’s JPMorgan Private Bank in London.
The European currency may retest a key “psychological” support level of $1.30 per dollar after trying to break it three times this year, Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo said, citing technical indicators. Support refers to an area on a price graph where buy orders may be grouped.
The so-called Aussie dollar declined against all but one of its major peers. Australia’s producer-price index dropped 0.3 percent in the January-to-March period from the prior quarter, when it gained 0.3 percent, the Bureau of Statistics said in Sydney today. The index was forecast to climb 0.4 percent, according to the median estimate of economists in a Bloomberg News survey.
A Credit Suisse Group AG index based on swaps indicates traders are betting the Reserve Bank of Australia will lower rates by 98 basis points over the next 12 months. That compares with 38 basis points indicated on March 20.
“We may not just have one more rate cut, the first one in early May, but there may be a second in June, because our economy is growing below trend,” Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney, said of RBA policy. “The Aussie may be a touch softer over the week.”
The Aussie fell 0.8 percent to $1.0296 and slid 1.4 percent to 83.48 yen.
The dollar gained against all but two of its 16 major peers tracked by Bloomberg on the prospect reports tomorrow will show the U.S. economy is gaining momentum, reducing the likelihood the Federal Reserve will expand monetary easing.
The Commerce Department may say tomorrow that purchases of new homes rose 1.6 percent in March, a separate poll showed. The Conference Board’s confidence index was probably 69.8 in April, compared with 70.2 in March, according to the median forecast in a Bloomberg survey before the New York-based private research group announces the data.
The Fed will release a statement on monetary policy along with its projections for growth, unemployment and inflation on April 25. All 76 economists surveyed by Bloomberg predict the central bank will keep its benchmark rate in a range of zero to 0.25 percent at the meeting.
“The Fed’s meeting is likely to push euro-dollar lower,” BNP’s Sneyd said. “The views of the hawkish members are likely to be interpreted by markets as an indication of less monetary accommodation.”
The dollar has gained 2.2 percent over the past six months, according to Bloomberg Correlation-Weighted Indexes. The yen has weakened 6.1 percent and the euro has dropped 3.5 percent, the data show.