The euro was set for its biggest weekly drop versus the yen since July as European industrial output fell, Greece’s economy contracted and France’s stalled, stoking bets the European Central Bank will cut interest rates. The franc depreciated against the euro a day after the Swiss National Bank said a temporary peg to the European currency was possible to stem the currency’s gains. The Australian and New Zealand dollars fell versus the greenback on demand for a refuge before a U.S. report forecast to show consumer confidence fell to a two-year low. “When you mix all these numbers together, you have a painful course for economic growth, suggesting a long, drawn-out recovery,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. An interest-rate cut by the ECB is “not something we should rule out,” she said. “It’s not likely the next month or so, but maybe later this year or next.” The euro dropped 0.2 percent to 109.24 yen at 7:35 a.m. in New York, from 109.42 yesterday, extending its weekly decrease to 2.4 percent, the most since the five days ended July 15. The shared currency traded at $1.4262, compared with $1.4241. The dollar dropped 0.3 percent to 76.58 yen, approaching the post-World War II low of 76.25 yen. The Swiss franc depreciated 1.4 percent to 1.09903 per euro, following yesterday’s plunge of more than 5 percent, and weakened 1.2 percent against the dollar to 77.03 centimes. The franc rallied to a record 1.00749 per euro on Aug. 9. European Output Industrial production in the euro area fell 0.7 percent in June after a 0.2 percent increase in previous month. The median forecast of 30 economists in a Bloomberg News survey was for no change. Output rose 2.9 percent in the year to June, compared with a forecast 4.2 percent increase. Greece’s economy shrank 6.9 percent in the second quarter of 2011 from the same period a year earlier, a fifth straight decline. French economic growth stalled from the previous three months, when it expanded 0.9 percent. France, Spain, Italy and Belgium will impose bans on short selling from today to stabilize markets after European banks including Societe Generale SA hit their lowest level since the credit crisis, the European Securities and Markets Authority said. A short is a bet an asset will decline. French President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel will meet next week after concern the region’s debt crisis is spreading rattled French markets. Weaker Kiwi New Zealand’s dollar dropped 0.7 percent to 82.60 U.S. cents and Australia’s currency slid 0.3 percent to $1.0325 as concern the global economy is slowing discouraged demand for higher-yielding assets. The kiwi and Aussie “will be hostage to wider global developments,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington, New Zealand. “Investors will still be pretty tentative.” A preliminary reading of the Thomson Reuters/University of Michigan index of U.S. consumer sentiment fell to 62 this month, according to the median forecast in a Bloomberg News survey before today’s data. That would be the lowest since March 2009. The Swiss franc weakened for a second day versus the euro after the Tages-Anzeiger newspaper reported the central bank probably wouldn’t face criticism if it communicated a target for the franc exchange rate, citing members from Switzerland’s four largest political parties. Tumbling Franc The franc tumbled yesterday the most against the euro since the shared currency’s 1999 debut after Swiss National Bank Vice President Thomas Jordan was reported as saying a temporary peg to the euro would be legal as policy makers try to stem the currency’s gains. “The safe havens seem to be under attack, not just the Swiss franc but also the yen and, as of yesterday, gold,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. The franc “is massively volatile at the moment and has been on a huge appreciation trend, so from an investor’s point of view it’s best to steer clear.” Gold for immediate delivery fell 0.2 percent to $1,761.15 an ounce in London. Crude oil for September delivery fell as much as 2 percent to $84.02 a barrel. China’s yuan headed for its biggest weekly advance since December 2007 on signs China will favor a stronger currency to tame inflation, which accelerated to a three-year high in July. The People’s Bank of China may rely more on appreciation to ease imported inflationary pressure because it doesn’t want to spur capital inflows by raising interest rates, the China Securities Journal said in a front-page commentary today. Consumer prices rose 6.5 percent from a year earlier in July. “We still haven’t seen the peak of China’s inflation,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It’s logical the government is using currency gains to curb inflation.” The yuan was little changed at 6.3898 per dollar and has gained 0.8 percent this week. To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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