BLBG: Euro Falls on Bets ECB Division to Undermine Economic Recovery
The euro fell to the lowest level this month against the yen on speculation policy disagreement among the region’s central bankers will undermine efforts to haul the economy out of the recession.
The dollar pared its gain versus the euro as manufacturing in the Philadelphia region contracted less than forecast and JPMorgan Chase & Co.’s profit exceeded analysts’ estimates, reducing demand for safety. South Africa’s rand was the best performer among the world’s major currencies on bets the central bank will keep cutting borrowing costs to revive growth.
“The euro is in a precarious position,” said Ian Stannard, currency strategist in London at BNP Paribas SA. “The policy response to the situation in Europe is behind the curve.”
The 16-nation euro fell 0.5 percent to 130.74 yen at 10:08 a.m. in New York, from 131.44 yesterday, after dropping to 129.37, the lowest level since March 31. It traded at $1.3208, compared with $1.3227. Japan’s currency appreciated 0.3 percent to 99.08 against the dollar from 99.37.
South Africa’s rand appreciated 2.4 percent to 8.8953 versus the dollar on speculation an unexpected drop in retail sales in February bolstered the case for the central bank to lower its 9.5 percent target lending rate.
JPMorgan Chase Profit
The dollar pared its gain versus the euro after the Federal Reserve Bank of Philadelphia reported that manufacturing in the region contracted in April at a slower pace than forecast as orders improved. The general economic index increased to minus 24.4 this month from minus 35 in March, the bank said today. Negative numbers signal contraction.
JPMorgan Chase, the second-largest U.S. bank by assets, reported that earnings dropped in the first quarter to $2.14 billion, or 40 cents a share, compared with 32 cents forecast by analysts.
The European Central Bank has yet to decide whether to follow its counterparts in the U.S. and the U.K. in pumping money into the economy to purchase assets, a measure known as quantitative easing.
“Fissures are highly damaging to sentiment,” currency strategists including London-based Gareth Berry at UBS AG, the world’s second-biggest foreign-exchange trader, wrote in a report today. “It appears that the key members of the Governing Council remain disconnected with market perception, and this is already affecting the euro’s performance.”
ECB’s Rate
ECB council member Axel Weber said yesterday the bank shouldn’t reduce its benchmark interest rate below 1 percent, putting him at odds with policy makers who say borrowing costs must fall to near zero.
The Organization for Economic Cooperation and Development forecast on March 31 that Europe’s economy would shrink 4.1 percent this year, compared with 4 percent in the U.S.
Industrial production in the euro region sank 18.4 percent in February from a year earlier, the biggest decline since the data series began in 1986, the European Union’s statistics office said. Economists expected output to fall 18 percent.
The ECB will announce a package of new measures next month to rescue the economy, Weber said in Hamburg yesterday.
Investors raised bets the ECB will reduce its 1.25 percent target lending rate at its May 7 meeting. The implied yield on the three-month Euribor interest-rate futures contract for June delivery fell to 1.27 percent today from 1.28 percent a week earlier.
Yen Versus Kiwi
The yen rose against the New Zealand and Australian dollars on speculation investors will reduce purchases of higher- yielding assets as China’s gross domestic product grew 6.1 percent in the first quarter from a year earlier, the weakest since the fourth quarter of 1999. The median estimate of economists surveyed by Bloomberg was for 6.2 percent growth.
“Some people bought the yen on the back of the Chinese growth data, which they find disappointing because it’s at the level that is unlikely to allow employment to grow,” said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp., the world’s biggest custodian of financial assets. “But longer term, I’m a yen bear. My general feeling is that the worst is perhaps behind us.”
New Zealand’s dollar slid 2.4 percent to 56.35 yen, while Australia’s dollar fell 1.7 percent to 71.17. China’s yuan traded at 6.8326 per dollar, compared with 6.8322 yesterday, according to the China Foreign Exchange Trade System.
Benchmark rates are 3 percent in Australia and in New Zealand, making assets in the South Pacific nations attractive to international investors seeking higher returns. Japan’s benchmark is 0.1 percent, and the U.S. Federal Reserve maintains a range of zero to 0.25 percent.
The pound fell 1 percent to $1.4853 today after a three-day gain. Sterling rallied yesterday to $1.50 for the first time in three months on evidence the housing slump eased.
