The euro weakened for a fifth day versus the dollar after an election loss for Germany’s ruling party stoked concern support is fading for bailouts of Europe’s indebted states, boosting demand for refuge currencies.
The Swiss franc rose against all its major counterparts after German Chancellor Angela Merkel’s Christian Democratic Union failed to sway voters in her home state with a campaign based on her handling of the region’s debt crisis. The Dollar Index extended last week’s gain as European shares tumbled before a U.S. report tomorrow that economists said will show service-industry growth slowed, adding to signs the global expansion is slowing.
“Another state that Merkel’s CDU has failed to secure in the vote, that’s six now in total, has spurred some euro selling,” said Lauren Rosborough, a senior strategist at Westpac Banking Corp. on London. “We’ve got risk aversion across the board with dollar buying, Swiss buying, gold a little bit stronger and the euro has been sold off.”
The euro slid 0.4 percent to $1.4145 as of 9:46 a.m. in London after falling to $1.4113, the weakest level since Aug. 11. The single currency weakened 0.4 percent to 108.65 yen. The franc advanced 0.7 percent to 1.11271 per euro. The yen was little changed at 76.87 per dollar.
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 74.970, after gaining 1.3 percent last week. The Stoxx Europe 600 Index of shares fell 2.3 percent and the MSCI Asia Pacific Index slid 2.6 percent. Gold futures in New York climbed above $1,900 an ounce.
Merkel’s Loss
The Social Democrats, Germany’s main opposition party, won yesterday’s election Mecklenburg-Western Pomerania with 36.1 percent of the vote, while Merkel’s party had 23.3 percent, ZDF television projections showed.
The result in the eastern state where Merkel’s election district is located means her national coalition has been defeated or lost votes in all six German state elections so far this year as voters resist her bid to prevent a euro-region breakup by putting more taxpayer money on the line for bailouts.
“Positioning has turned against the euro again and news flow isn’t helping,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in an e- mailed note. Merkel’s defeat “simply adds to the sense that saving the euro is going to be made more difficult by opposition from within Germany.”
Manufacturing Weakens
European services and manufacturing growth weakened in August as austerity measures and waning demand clouded growth prospects. A composite index based on a survey of euro-area purchasing managers in both industries dropped to 50.7 from 51.1 in July, Markit Economics said today. It had initially reported an unchanged reading of 51.1. A figure over 50 indicates growth.
European Central Bank President Jean-Claude Trichet is scheduled to speak in Paris today before the ECB’s policy meeting on Sept. 8. While all the 57 economists surveyed by Bloomberg forecast the central bank to leave its benchmark interest rate at 1.5 percent, traders bet it will cut borrowing costs by 26 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps.
“If the ECB takes away the tightening bias, it’s going to take away some support out of the euro,” said Alex Sinton, a senior dealer at ANZ National Bank Ltd. in Auckland, New Zealand. “You would see the euro moving down to the $1.4010 area.”
Dollar Index
The Dollar Index advanced for a fifth day as signs the world’s largest economy is slowing increases demand for safer assets. The Institute for Supply Management’s non-manufacturing index fell to 51 last month, the lowest since January 2010, according to a Bloomberg News survey.
U.S. payrolls were unchanged in August, the weakest reading since September 2010, the Labor Department said on Sept. 2. President Barack Obama is scheduled to outline his plans to spur the economy in a Sept. 8 address to Congress. U.S. financial markets are shut today for a holiday.
“The market went into payrolls hopelessly optimistic and that optimism wasn’t rewarded,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Developments in Europe justify further risk aversion.”
The franc, a traditional haven from financial-market turmoil, surged 1.1 percent versus the New Zealand dollar and 0.8 percent against the Australian dollar and 0.8 percent versus the Swedish krona.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.
