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. “We’re in a world where you need aggressive policy action on many fronts, and that’s the Achilles’ heel of the euro,” said Richard Franulovich, a currency strategist at Westpac Banking Corp. in New York. “I’m one of these frustrated, patient bears when it comes to the euro.” The 16-nation currency will probably drop to $1.25 in three months, Franulovich predicted. The euro slid 0.3 percent to 131.05 yen at 11:46 a.m. in New York, from 131.44 yesterday, after dropping to 129.37, the lowest level since March 31. It decreased 0.2 percent to $1.3195 after falling as low as $1.3129. Japan’s currency traded at 99.31 against the dollar, compared with 99.37. South Africa’s rand appreciated as much as 2.6 percent to 8.8775 versus the dollar, the strongest level since Oct. 14, 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. Dollar Pares Gain The dollar lost momentum versus the euro as a report from the Federal Reserve Bank of Philadelphia showed the region’s manufacturing shrank at a slower pace in April. The general economic index climbed to minus 24.4 this month from minus 35 in March, the bank said. Negative numbers indicate contraction. A reading of minus 32 was forecast by analysts. JPMorgan, the second-largest U.S. bank by assets, reported earnings dropped in the first quarter to $2.14 billion, or 40 cents a share, exceeding analysts’ average estimate of 32 cents. The European Central Bank is due to announce on May 7 whether it will follow counterparts in the U.S. and U.K. in pumping money into the economy by purchasing assets. ECB council member Axel Weber said yesterday the bank shouldn’t cut interest rates below 1 percent, putting him at odds with policy makers who say borrowing costs must fall close to zero. “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 Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the 1.25 percent target rate below 1 percent and purchasing debt securities to pump money into the economy. Austria’s Ewald Nowotny has said debt purchases would be “sensible” and the debate on how low to cut the benchmark rate is still open. 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. 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 1.9 percent to 56.65 yen, while Australia’s dollar fell 1.2 percent to 71.53. China’s yuan traded at 6.8326 per dollar, compared with 6.8322 yesterday, according to the China Foreign Exchange Trade System. Benchmark lending rates are 3 percent in Australia and 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 Fed maintains a range of zero to 0.25 percent. The pound fell 0.7 percent to $1.4899 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.

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