The euro declined from near its strongest level in six weeks against the dollar on speculation the region’s central bank will keep interest rates at a record low amid signs the global recovery is slowing. The yen traded near a seven-month high against the dollar before reports today and tomorrow that economists said will show European investor confidence weakened and U.S. service industries expanded at a slower pace. South Korea’s won gained for the first time in five days after Goldman Sachs Group Inc. raised its 2010 economic growth forecast for the nation. “The ECB will be forced into a lower-for-longer stance on its monetary policy,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “We are still very bearish on the euro and expect a move towards $1.15 by the end of the year.” The euro fell 0.3 percent to $1.2534 as of 7:14 a.m. in London from $1.2566 on July 2, when it reached $1.2612, the most since May 21. The yen traded at 87.95 per dollar from 87.75 last week in New York, after climbing to 86.97 on July 1, the strongest since Dec. 2. It bought 110.24 per euro from 110.27. The European Central Bank will leave rates unchanged when policy makers meet on July 8, according to a Bloomberg News survey, as efforts to trim budget shortfalls in the region damp growth prospects. The central bank will begin raising rates in the second quarter of 2011, according to the median estimate of economists. Austerity Measures ECB President Jean-Claude Trichet pressed governments to trim their budget deficits this month, saying such action would improve the confidence of consumers and investors. “We are in a period where we have to manage budgets very tightly,” Trichet told journalists yesterday. An index measuring sentiment in the 16-nation region declined to minus 5 in July from minus 4.1 in June, Limburg, Germany-based Sentix is forecast to say today, according to a Bloomberg News survey of economists. “There are lingering worries that austerity measures will harm European growth,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We’re still looking to sell the euro on rallies.” Losses in the yen were tempered as futures traders increased bets for a second week that Japan’s currency will gain, figures from the Washington-based Commodity Futures Trading Commission showed. Net Longs The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 27,427 on June 29, compared with net longs of 3,630 a week earlier. “The decline in risk appetite over recent weeks is showing little sign of abating,” said Gareth Berry, currency strategist in Singapore at UBS AG. “The yen will likely continue to benefit as a safe-haven destination.” The dollar fell to its weakest level in seven months against the yen on July 1 as traders added to bets the Federal Reserve will keep its benchmark rate near zero on signs the economy is slowing. The Institute for Supply Management’s index of non- manufacturing businesses, which make up about 90 percent of the economy, fell to 55 in June from 55.4 the previous month, according to a Bloomberg News survey. Readings greater than 50 signal expansion. The report is due tomorrow. Fed Rate Bets Futures on the CME Group Inc. exchange show a 34 percent chance the Fed will hold its benchmark rate between zero and 0.25 percent through its April 2011 meeting, up from 12 percent odds a month earlier. U.S. markets are shut today for the Independence Day holiday. Trading may be “relatively quiet” due to lower liquidity, Khoon Goh, a senior markets economist at ANZ National Bank Ltd., wrote in a note to clients. South Korea’s won led gains among regional currencies before a central bank meeting. The Bank of Korea will keep its benchmark interest rate at a record-low 2 percent at a review on July 9, according to seven of 10 economists surveyed by Bloomberg. Three predicted a quarter of a percentage point increase. “Offshore players are selling dollars more than expected,” said Ha Jun Woo, a currency trader for Daegu Bank Ltd. in Seoul. “We’re also seeing preemptive bets ahead of the central bank’s monetary policy meeting. If interest rates rise, that will push investors to sell dollars and buy the won.” The won strengthened 0.5 percent to 1,223.03 per dollar, after sliding 1.1 percent last week, according to data compiled by Bloomberg. The currency will trade between 1,220 and 1,238 per dollar today, Ha forecast. Gross domestic product will rise 5.3 percent this year, more than a previous forecast of 4.8 percent, and the central bank will likely raise interest rates this quarter, Goohoon Kwon, a Seoul-based economist at Goldman, wrote in a report published yesterday. He raised his estimate of first-half growth to 7.3 percent from 6.2 percent to reflect better-than-expected exports and kept his forecast for the final six months at 3.4 percent. To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

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