SF: Euro Near Two-Week Low as Stocks Fall, Economic Recovery Stalls
By Lukanyo Mnyanda
April 7 (Bloomberg) -- The euro traded near its lowest level against the dollar in almost two weeks as stocks declined and a report showed Europe's economic recovery came to a halt in the fourth quarter.
The 16-nation currency slipped the most against the Taiwanese and Canadian dollars. A European Union report showed gross domestic product in the euro area was flat in the fourth quarter, making it more likely policy makers will keep interest rates at a record low when they announce their decision tomorrow. Canada's dollar traded near the highest level since July 2008 against its U.S. peer before a report that may show business and government spending increased. The pound fell after services industries expanded less than forecast.
"The euro is overvalued and it will continue to drift down," said Adam Cole, head of global currency strategy at Royal Bank of Canada in London. "The economic and political risks are intimately linked and the prospects of a rate hike are slipping further into the future."
The euro traded at $1.3373 as of 6:44 a.m. in New York, from $1.3399 yesterday, when it slid to $1.3355, the lowest level since March 26. The 16-nation currency weakened to 42.25 Taiwanese dollars, from 42.47. It dropped to C$1.3365 from C$1.3420, and was at 125.68 yen, from 125.67 yen.
The dollar rose to 94.02 yen from 93.79 yen. The pound slipped to $1.5184 from $1.5267.
Stocks Fall
Germany's DAX Index and France's CAC 40 Index slipped about 0.1 percent and futures on the U.S. Standard & Poor's 500 Index dropped 0.2 percent.
The EU statistics office in Luxembourg reported zero percent growth in the fourth quarter, after previously reporting a 0.1 percent expansion compared with the third quarter, when it rose 0.4 percent. Producer prices in the euro declined in February from a year earlier, a separate report showed.
The European Central Bank will keep the main refinancing rate at a record low of 1 percent tomorrow, according to all 62 economists surveyed by Bloomberg. Policy makers have left the rate at that level since May.
The yen fell against Asian currencies including South Korea's won as signs of a recovery in the Asia-Pacific region boosted demand for higher-yielding assets. The World Bank said East Asian economies may have "rapid growth" in coming years.
"Risk sentiment is firm, which means the downward trend in the yen may persist," said Akane Vallery Uchida, a currency strategist at Royal Bank of Scotland Group Plc in Tokyo.
The yen slipped 0.4 percent to 11.93 won. The Bloomberg- JPMorgan Asia Dollar Index, a gauge of the region's 10 most-used currencies excluding the yen, traded near its highest since August 2008.
Asian Expansion
Emerging East Asia, which excludes Japan and the Indian subcontinent, will expand 7.6 percent this year, more than a November estimate of 6.4 percent, the World Bank said in its semi-annual report today.
The yen stayed lower after the Bank of Japan today left its benchmark overnight lending rate at 0.1 percent and kept its assessment of the world's second-largest economy unchanged. The interest-rate decision was expected by all 21 economists surveyed by Bloomberg.
Bank of America-Merrill Lynch cut its forecasts for the yen, citing the prospect of higher U.S. interest rates and the Bank of Japan's decision to extend credit-easing measures. Interest-rate futures contracts on the Chicago Board of Trade show a 59 percent chance U.S. policy makers will raise the target lending rate from a range of zero to 0.25 percent by their November meeting.
Canadian Dollar
Japan's currency will trade at 92 per dollar by the end of June, compared with its previous prediction of 87, and will be at 94 by Sept. 30, weaker than its earlier forecast of 89, Tomoko Fujii, a senior currency strategist at the U.S. bank, wrote in research note to clients. The yen will fall to 97 against the dollar by year-end, versus its previous estimate of 91, Fujii said.
The Canadian dollar climbed for a third day against the greenback, strengthening 0.2 percent to C$0.9997 per U.S. dollar from C$1.0016 yesterday. It strengthened to C$0.9978 earlier, the strongest level since July 15, 2008.
Canada's Ivey purchasing managers' index probably rose to 55 last month, from a reading of 51.9 in February, according to the median prediction of 16 economists surveyed by Bloomberg. Figures above 50 indicate purchasing increased.
The pound fell 0.5 percent to $1.5192 and was 0.3 percent weaker at 88.04 pence against the euro.
Markit Economics and the Chartered Institute of Purchasing and Supply said its index of activity at service companies declined to 56.5 in March from a three-year high of 58.4 in February. Economists had predicted a reading of 58, according to 22 forecasts in a Bloomberg survey.
--With assistance from Ron Harui in Singapore. Editors: David Clarke, Justin Carrigan
