BLBG:Euro Trades Near 3-Week Low Before German Industrial Data
The euro fell toward a three-week low versus the yen before a report today that may show German industrial production declined, backing the case for the European Central Bank to avoid raising interest rates.
The 17-nation currency was near the lowest level in three weeks against the dollar before France auctions bonds due from 2017 to 2041 today amid concern Europe’s prolonged debt crisis will weigh on the economy. The yen gained against most of its 16 major counterparts as a rout in global equities boosted demand for safer assets. The yuan weakened amid speculation China will counter appreciation to combat a slump in exports.
“Most of Europe is going through a contraction,” said Andrew Salter, a foreign-exchange strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “If the peripheral governments cannot make the necessary reforms, in the long term that’s a negative for the euro.”
The euro fell 0.2 percent to 108.16 yen at 6:46 a.m. in London. It yesterday touched 107.91, the lowest since March 13. The currency fetched $1.3154 from $1.3142 yesterday, when it slid as low as $1.3107, the weakest since March 16. The dollar was at 82.23 yen from 82.46.
The MSCI Asia Pacific Index of shares fell as much as 1.2 percent after dropping 1.5 percent yesterday. The MSCI All- Country World Index dropped 1.9 percent yesterday, the biggest slide since March 6.
Germany’s industrial production probably decreased 0.5 percent in February from the previous month, when it gained 1.6 percent, according to the median estimate of economists in a Bloomberg News survey before the Economy Ministry releases the figure.
ECB Meeting
The ECB left its main refinancing rate at a record low 1 percent at a policy meeting yesterday. The result was predicted by all 57 economists in a Bloomberg News poll.
“The remaining tensions in euro-area sovereign-debt markets are expected to damp economic momentum,” ECB President Mario Draghi told reporters in Frankfurt after the meeting.
Investor demand for the debt of Spain, the euro area’s fourth-largest economy, slumped yesterday, with the country selling 2.59 billion euros ($3.4 billion) of bonds, less than its maximum target of 3.5 billion euros.
Prime Minister Mariano Rajoy said Spain’s situation is one of “extreme difficulty” and signaled that his budget cuts are less painful than a bailout would be.
The euro has declined 0.8 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 0.5 percent, and the yen has gained 0.7 percent.
Demand for the greenback was supported amid signs of a recovery in the labor market, damping speculation the Federal Reserve will carry out another round of bond purchases, known as quantitative easing.
Jobs Growth
Nonfarm payrolls probably rose by 205,000 in March after climbing by 227,000 in February, economists in a Bloomberg survey forecast ahead of tomorrow’s data. That would follow a report from ADP Employer Services yesterday that showed U.S. companies added 209,000 workers in March after hiring 230,000 in February.
“To the extent that employment numbers have a bearing on the market’s perception of future asset purchases, that can impact the U.S. dollar,” ANZ’s Salter said. “When the market has perceived that asset purchases by the Fed are not going to be forthcoming, the Treasury market has sold off and the U.S. dollar has increased alongside that.”
Ten-year Treasury yields rose 12 basis points on April 3, the biggest increase in three weeks, after minutes of the Fed’s latest meeting indicated a decreased urgency for further stimulus. The securities currently yield 2.23 percent, according to Bloomberg Bond Trader prices.
FOMC Minutes
The U.S. central bank will refrain from increasing monetary accommodation unless economic expansion falters or prices rise at a rate slower than its 2 percent target, the minutes showed. The Fed bought $2.3 trillion of securities in two rounds of bond purchases from December 2008 to June 2011, and has pledged to keep interest rates low through late 2014.
A “bullish engulfing candle” on April 3 indicates the Dollar Index may be poised for an advance to its strongest level in more than two months, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy at Bank of America Corp. in New York, wrote in a note yesterday.
Dollar Index
The gauge, which Intercontinental Exchange Inc. uses to track the currency against those of six major trading partners, may climb to its Jan. 13 high of 81.78 in coming weeks, Curry wrote. A bullish engulfing-candle highlights the potential for a change in investor sentiment. A candlestick chart displays a security’s high, low, open and close for each day.
The Dollar Index was at 79.65 today, after gaining 1.1 percent over the past two days.
China’s yuan dropped before a report next week that may show a halving in the pace of export growth in March. The People’s Bank of China cut its daily yuan fixing by 0.15 percent to 6.3035 per dollar.
“They are trying to keep the yuan as weak as possible during the month to help exporters,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.
The yuan slid 0.2 percent from its March 30 close to 6.3108 per dollar, according to the China Foreign Exchange Trade System. Onshore markets were closed for the first three days of this week due to public holidays. The currency is allowed to fluctuate 0.5 percent on either side of the fixing.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
