BLBG:Euro Is Near 16-Month Low Before ECB Meeting, European Manufacturing Data
The euro was 0.4 percent from a 16- month low against the dollar on speculation European Central Bank policy makers meeting today won’t take steps to support growth even as reports signal a struggling euro-area recovery.
The 17-nation currency held a drop from yesterday versus the yen before figures estimated to show European output shrank in November. Demand for the euro was limited before Spain and Italy sell debt today, amid concern the nations will struggle to meet funding needs. The New Zealand dollar maintained a three- day gain on prospects slowing inflation in China may provide policy makers with scope to spur growth, boosting investor appetite for higher-yielding assets.
“The Europe contagion story will linger around for quite a bit longer,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “There’s the ECB, as well as the Spanish and Italian auctions today, so it should be interesting to see whether there’s demand. If they don’t go off well, I think certainly the euro will be under pressure.”
The euro traded at $1.2717 as of 12:32 p.m. in Tokyo from $1.2707 yesterday in New York, when it slid to as low as $1.2662, the weakest level since September 2010. It fetched 97.74 yen from 97.67. The dollar was unchanged at 76.85 yen. New Zealand’s currency bought 79.63 U.S. cents from 79.70.
ECB, Production
The ECB will probably keep its key interest rate at 1 percent at a policy meeting today, the median estimate of economists surveyed by Bloomberg News showed. The bank cut its benchmark rate by a quarter of a percentage point at each of its last two meetings.
UBS AG expects the central bank to decrease borrowing costs by another 25 basis points, it said in a note today. “We remain short euro-dollar as a fundamental trade recommendation from $1.2755 with stop at $1.3050, targeting $1.2250,” Geoffrey Yu, a London-based currency strategist, wrote.
Industrial production in the euro region is forecast to have shrunk for a third month in November, according to a separate poll before the European Union’s statistics office in Luxembourg releases the data today. The median forecast is for a 0.3 percent contraction.
Spain will auction as much as 5 billion euros ($6.4 billion) of bonds due 2015 and 2016 today, while Italy is scheduled to sell 12 billion euros of bills.
Corporate ratings downgrades in Europe, the Middle East and Africa will “substantially” exceed upgrades this year as the euro-area crisis hampers economic growth, according to Moody’s Investors Service. “The current trend for corporate rating actions is strongly negative,” analysts wrote in a report published today.
‘Take Back Control’
French President Nicolas Sarkozy said yesterday “markets and rating agencies exasperate” French voters and that the country needs to “take back control” of its destiny by cutting the budget deficit.
Fitch Ratings is unlikely to downgrade France’s credit rating in 2012 unless there is a “serious intensification” of Europe’s debt crisis, David Riley, head of the sovereign-debt unit, said on Jan. 10.
“There isn’t any reason to be buying euro at the moment,” said JPMorgan’s Brady. “I’m still quite comfortable selling euro on rallies and remaining short.”
The euro has depreciated 1.6 percent this month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The New Zealand and Australian dollars, the two best performers, gained 3.3 percent and 1.5 percent respectively.
China Inflation
Consumer prices in China rose 4.1 percent in December from a year earlier, the National Bureau of Statistics said on its website today. The figure was 4.2 percent the previous month.
“The fact that they’re looking at more stimulatory polices in China now, and people think that’s turned the corner, is making a big difference,” said Tony Allen, global head of foreign-exchange trading in Sydney at Australia & New Zealand Banking Group Ltd. “The commodity indexes are starting to move up as well,” supporting currencies like the Australian and New Zealand dollars.
The People’s Bank of China announced in November that it would cut the reserve requirement ratio for the nation’s banks by 50 basis points, the first reduction since 2008. China is Australia’s top trading partner and New Zealand’s second-largest export destination.
The Thomson Reuters/Jefferies CRB (CRY) index of raw materials has gained 2.7 percent this month.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
