Euro Falls for Fifth Day Versus Yen as Economy Shrinks; Aussie Declines
Tuesday, 06 March 2012 | 15:00
The euro weakened for a fifth day against the yen after a European report showed the region’s economy contracted last quarter, adding to signs the debt crisis is hampering growth.
The 17-nation currency dropped to a two-week low versus the dollar as investors debated whether to accept the conditions of a Greek bond swap under its private-sector involvement plan. The yen and dollar strengthened against higher-yielding currencies as stocks fell around the world, spurring demand for safer assets. Australia’s dollar fell for a third day after the central bank said there’s scope to cut interest rates.
“There are still good reasons to sell the euro,” said Chris Walker, a currency strategist at UBS AG in London. “The euro remains for now a risk currency. There is still significant event risk, particularly with regard to the Greek PSI, and the economic picture remains negative. Fundamental drivers, such as GDP, are pointing downwards.”
The euro slid 1.2 percent to 106.51 yen at 6:28 a.m. in New York, extending its decline in the past week to 1.6 percent. The common currency fell 0.6 percent to $1.3138 after dropping to $1.3131, the lowest level since Feb. 17. The dollar slipped 0.6 percent to 81.08 yen.
Europe’s gross domestic product declined 0.3 percent from the third quarter, the region’s statistics office said today, confirming an initial estimate published on Feb. 15. Exports fell 0.4 percent and household spending declined 0.4 percent. The ECB will keep its benchmark interest rate at a record low 1 percent on March 8, a Bloomberg News survey showed.
“Buying the euro makes no sense,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “The European Central Bank is tied up with tackling the region’s sovereign-debt problem and has no room left to bolster the economy through monetary policy.”
The euro dropped as Greece struggles to complete a bond exchange with private investors by March 8 in order to receive a 130 billion-euro bailout. Greece expects bondholders to accept the offer and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said in a Bloomberg Television interview in Athens yesterday.
Futures traders are betting the euro will extend losses against the dollar, according to figures from the Washington- based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain was 109,674 on Feb. 28. It reached a record 171,347 in January.
The euro has weakened 3.2 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has strengthened 3.5 percent, and the yen dropped 3 percent.
The yen and dollar advanced today as the Stoxx Europe 600 Index (SXXP) of shares declined 1.4 percent and futures on the Standard & Poor’s 500 Index (SXXP) fell 0.8 percent.
The U.S. currency also appreciated after Federal Reserve Bank of Dallas President Richard Fisher said yesterday he opposes additional bond purchases.
Recent reports have highlighted that U.S. growth is broadening, with data yesterday showing service industries unexpectedly expanded last month at the fastest pace in a year. ADP Employer Services will report tomorrow that U.S. companies hired 213,000 workers in February from 170,000 in the prior month, a Bloomberg survey of economists showed.
“If the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Fisher said yesterday in Dallas.
Intercontinental Exchange Inc.’s Dollar Index (DXY), used to track the greenback against the currencies of six major U.S. trading partners, gained 0.5 percent to 79.713.
The gauge may find it difficult to strengthen further without “clear euro-negative news,” according to Lloyds Bank Corporate Markets, citing trading patterns.
The Dollar Index “failed to break above the 50-day moving average at 79.67 and the 76.4 percent Fibonacci retracement of the second half of the February down move at 79.64,” foreign- exchange strategists Adrian Schmidt and Jennifer Hau wrote today in a note to clients. “These levels and the 80 area above them provide significant resistance,” they wrote.
The Dollar Index last rose above 80 on Feb. 16, when it reached 80.119, the highest level since Jan. 25, according to data compiled by Bloomberg.
Australia’s dollar fell to a five-week low after the central bank left its benchmark rate at 4.25 percent and reiterated it has scope to ease monetary policy if needed.
The Reserve Bank of Australia said in a statement that while current settings are “appropriate for the moment,” there is scope for easier policy if demand weakens “materially.”
“The RBA has kept an easing bias,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The statement may have been more dovish than some people have expected. I see more downside to the Aussie.”
Australia’s dollar dropped 0.7 percent to $1.06 after sliding to $1.0573, the lowest since Feb. 1.