BLBG: Euro Trades Near Lowest Since 2006 on Concern Growth to Slow
By Matthew Brown and Candice Zachariahs
May 18 (Bloomberg) -- The euro traded near its lowest level against the dollar in four years as German investor confidence slid and European finance ministers struggled to assuage concern that the region’s economic growth will slow.
The yen weakened against nine of its 16 most-traded peers as stocks rose in Europe and U.S. index futures advanced. Australia’s dollar fell to near a three-month low after central bank minutes of its May 4 meeting damped expectations for more interest-rate increases as policy makers warned about effects from Europe’s fiscal crisis. The pound declined as inflation accelerated to a 17-month high.
“I don’t see the market holding out hope that this finance ministers’ meeting, after all the false dawns, is going to produce clarity,” said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. “There’s a safety net, but we don’t know who is going to contribute and if they can afford it. The euro is going to weaken from here.”
The euro traded at $1.2386 as of 10:37 a.m. in London, from $1.2395 in New York yesterday, when it slid to $1.2235, the lowest level since April 18, 2006. The 16-nation currency was at 114.85 yen, from 114.77 yesterday, when it reached the least since May 6. The dollar climbed to 92.71 yen, from 92.59.
Australia’s dollar declined 0.6 percent to 87.26 U.S. cents, after weakening to 86.86 cents yesterday, the lowest level since Feb. 9. The pound dropped 0.3 percent to $1.4438, sliding for the fifth consecutive day.
The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations dropped to 45.8 from 53 in April. Economists expected a slide to 47, according to the median of 35 forecasts in a Bloomberg News survey.
Spending Cuts
Euro area policy makers last week unveiled an unprecedented loan package of nearly $1 trillion and a program of bond purchases to prevent defaults by countries including Greece, Spain and Portugal.
The European Union said it transferred the first installment of emergency loans to Greece, allowing the country to repay 8.5 billion euros of bonds due tomorrow.
Spain unveiled on May 14 the biggest cuts in at least 30 years and Portugal followed a day later, pledging to slash wages and raise taxes. Italian officials said May 16 it may make an extraordinary reduction in spending and France is scheduled to submit spending plans this week.
High-Deficit Countries
Only high-deficit countries including Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations such as Germany and Finland, European finance ministers said after a meeting in Brussels.
“Not everyone will accelerate consolidation in a very uniform way,” EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters early today in Brussels. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.”
The euro dropped 8.6 percent this year against its developed world counterparts, according to Bloomberg Correlation Weighted Indexes. The common currency rebounded from a four-year low yesterday after the European Central Bank explained how it would absorb excess liquidity from bond purchases.
The euro’s 14-day relative-strength index, a measure of how rapidly prices rise or fall, was at 25 today. Readings below 30 are a signal that an asset’s value has dropped too fast and may be poised to rebound.
Sentiment ‘Very Weak’
“Short-term speculators may get squeezed out of the market if the euro doesn’t fall today,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “Sentiment towards the euro remains very weak for good reasons and that’s going to send it below $1.20 in the month ahead.”
The Australian dollar fell as the Reserve Bank of Australia officials said “increases in interest rates to date had been timely” with signs that the moves were “beginning to affect behavior” of consumers and home buyers, in minutes released today in Sydney of their May 4 meeting.
“The RBA is signaling a slowdown in the pace of rate hikes ahead, giving way to the kiwi for which interest rate expectations are gradually rising,” said Akira Maekawa, a senior economist at online currency trader Global Futures & Forex Ltd. in Tokyo.
U.K. consumer prices rose 3.7 percent from a year earlier, compared with a 3.4 percent increase in March, the Office for National Statistics said today in London. Economists forecast a 3.5 percent rate, according to the median of 27 predictions in a Bloomberg News survey.
To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
