BLBG: Euro Trades Near 2-Week Low as Recovery, ECB Rate Outlook Stall
By Ben Levisohn and Lukanyo Mnyanda
April 7 (Bloomberg) -- The euro traded near its lowest against the dollar in almost two weeks after a report showed Europe’s economic recovery came to a halt in the fourth quarter, fueling speculation policy makers will keep interest rates at a record low.
The 16-nation currency slipped against most of its major counterparts and tumbled to its weakest versus Canada’s dollar since 2007 after the European Commission declined to spell out the interest rates Greece would pay in case it needs aid from European governments. The yen rose against the dollar after China’s central bank said it will sell three-year bills for the first time since June 2008, prompting speculation it will allow gains in the yuan.
“The headlines are not going well for the euro,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “Anything that augurs to a less-strong recovery in Europe should weigh on the currency.”
The euro fell 0.4 percent to $1.3341 at 9:01 a.m. in New York, from $1.3399 yesterday. It touched $1.3326, the lowest level since March 26. It dropped 0.6 percent to 124.98 yen, from 125.67 yen. The dollar fell 0.1 percent to 93.68 yen from 93.79 yen, after earlier rising as much as 0.5 percent.
The Canadian currency traded near the highest level since July 2008 against its U.S. peer before a report that may show business and government spending increased.
Nothing to Add
A March 26 statement by European leaders on an aid package for Greece with International Monetary Fund involvement “is very clear and shows there is an agreement at the highest level and we have nothing else to add at this stage,” Amelia Torres, commission spokeswoman, told reporters in Brussels today. “There’s an agreement at the highest level on the interest rate.”
The European Union 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 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.”
ECB Rate Decision
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 held the rate at that level since May.
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.
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.
Canadian Currency
The Canadian dollar fell against the greenback after trading through parity for a second day, slipping 0.2 percent to C$1.0035 per U.S. dollar from C$1.0016 yesterday. It strengthened to 99.78 Canadian cents 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 0.6 percent to $1.5181 and slipped 0.1 percent to 87.87 pence against the euro.
Markit Economics and the Chartered Institute of Purchasing and Supply said their U.K. 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.
To contact the reporter on this story: Ben Levisohn in New York at blevisohn@bloomberg.net; Lukanyo Mnyanda in London at lmnyanda@bloomberg.net
