BLBG: Euro Declines as Economy Contracts Most in at Least 13 Years
The euro fell against the dollar and extended a weekly loss versus the yen after a report showed the economy of the 16-nation region contracted the most in at least 13 years, raising concern the pace of recovery will be slow.
Europe’s currency headed for its first weekly decline in a month versus the dollar. New Zealand’s dollar weakened against all of the 16 most actively traded currencies tracked by Bloomberg as the country’s retail sales dropped almost twice as much as economists forecast. South Korea’s won rose as overseas funds bought more local stocks than they sold.
“It’s a really bad piece of data, and it’s going to get worse because the European Central Bank has only come up with half-hearted measures,” said Geoffrey Yu, a strategist in London at UBS AG, the world’s second-largest currency trader. “This is going to be bad for the euro.”
The euro slid 0.7 percent to $1.3560 at 8:42 a.m. in New York, from $1.3639 yesterday, and was headed for a weekly decrease of 0.6 percent. The euro lost 1.1 percent to 129.19 yen from 130.67, for a 3.8 percent decline this week. The dollar dropped 0.5 percent to 95.35 yen, from 95.80.
New Zealand’s dollar fell 5.8 percent against the yen this week, the most since the five days through Jan. 16. It dropped 2.1 percent to 55.94 yen today. The kiwi, as New Zealand’s currency is known, slumped 13 percent to 58.90 U.S. cents, extending its weekly decline to 2.4 percent this week. South Korea’s won advanced 0.8 percent to 1,257 per dollar today, paring its weekly loss to 0.8 percent.
Declining GDP
Gross domestic product of the nations that use the euro dropped 2.5 percent in the first quarter after a decrease of 1.6 percent in the previous quarter, the European Union’s statistics office said today in Luxembourg. That’s the biggest drop since the beginning of euro-area GDP data in 1995 and exceeded the 2 percent reduction forecast in a Bloomberg survey of economists.
Germany’s gross domestic product dropped a seasonally adjusted 3.8 percent in the first quarter from the fourth quarter, when it fell 2.2 percent, the Federal Statistics Office in Wiesbaden said earlier today. That’s the deepest slump since quarterly data were first compiled in 1970 and compares with the 3 percent decline estimated by economists in a Bloomberg survey.
The yen and dollar headed for weekly gains versus higher- yielding currencies such as the South African rand and Australian dollar as stock markets were poised for their first weekly loss in two months.
“The trend for the global economy is still likely to be downward,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Investors remain risk-averse. The dollar and the yen will probably be bought.”
Dollar Index
The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose 0.3 percent to 82.644 from 82.388 yesterday and 82.529 at the end of last week.
The euro also fell this week as ECB policy makers clashed over the bank’s asset-buying program and the prospects for a recovery. Vice President Lucas Papademos said yesterday a recovery may come sooner than previously thought. Nout Wellink, a Dutch council member, said today economists shouldn’t be too optimistic. An Austrian council member, Ewald Nowotny, said today there is “no divergence in views of central bankers.”
The ECB cut its benchmark interest rate to a record 1 percent on May 7 and announced a plan to buy 60 billion euros ($81.8 billion) in covered bonds to loosen credit markets.
New Zealand’s Dollar
New Zealand’s dollar fell after the statistics office said retail sales declined for a record sixth quarter, dropping 2.9 percent, adjusted for inflation, from the previous three months. The median forecast of economists surveyed by Bloomberg was for a 1.5 percent decline.
The currency, which gained 20 percent against the dollar since the start of March, is an “accident waiting to happen,” Greg Gibbs, a foreign-exchange strategist in Sydney at RBS Group Australia Ltd., wrote in a report today.
“We’re forecasting a fall in the New Zealand dollar in the second half of the year, as the global recovery proves protracted and slow,” Gibbs said. “We expect risk appetite to take a step down from its recent recovery.”
New Zealand is in the sixth quarter of a recession that the central bank described as the worst in more than three decades. Reserve Bank Governor Alan Bollard cut the official cash rate by 5.75 percentage points since July to a record 2.5 percent and said last month he is unlikely to increase borrowing costs until late 2010.
South Korea’s won rose for the first time in four days against the dollar as bank borrowing costs declined, spurring demand for emerging-market assets.
“We’re now seeing foreign institutional investors coming back and buying equities in quite a major way,” Peter Redward, Singapore-based head of research for emerging Asia at Barclays Plc, said in a Bloomberg Television interview. “In the short term, people have been buying into the won recovery story. We’re looking for around 1,175 in one year’s time.”
