SD: Euro Declines Versus Yen, Dollar as Unemployment Rises to Record
July 2 (Bloomberg) -- The euro fell, snapping its biggest gain versus the yen in more than 15 months, as a report showed unemployment in the 17 countries sharing the currency climbed to a record in May.
Australia’s dollar touched an almost two-month high on bets the nation’s central bank will leave interest rates on hold tomorrow. The euro weakened against all but two of its 16 major peers after jumping the most against the dollar in eight months on June 29 as regional leaders eased terms on loans to Spanish banks. The European Central Bank will probably lower the benchmark rate by 0.25 percentage point on July 5, a Bloomberg News survey of economists shows.
“There was a very good bounce in the euro on Friday but now the market is recognizing the reality,” said Geoff Kendrick, the head of European currency strategy at Nomura International Plc in London. “The ECB meeting is coming up later in the week so the market might be choppy before that.”
The euro dropped 0.5 percent to 100.51 yen at 7:51 a.m. New York time after rising 2.2 percent on June 29, the steepest advance on a closing basis since March 2011. It fell 0.5 percent to $1.2608, after jumping 1.8 percent at the end of last week, the most since Oct. 27. The greenback weakened 0.1 percent to 79.74 yen.
The jobless rate in the euro area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995.
European Manufacturing
“We can’t buy the euro yet,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company. “The outlook for Europe’s economy is still bleak, and it still remains to be seen what economic measures will be undertaken there.”
The euro stayed weaker against the dollar and the yen after currency-bloc member Finland said it opposed granting the permanent European Stability Mechanism the ability to purchase bonds on the secondary market, other measures discussed at last week’s summit.
“The meeting also discussed to possibility that the ESM could acquire national bonds from the secondary market, but it didn’t reach consensus on the issue,” according to a statement on the Helsinki-based government’s website today. “Finland was among the Members States to oppose bond buying from the secondary market.”
Euro Bears ‘Intact’
The euro jumped and stocks rose at the end of last week after euro-area leaders dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks. Lenders can also be recapitalized directly with European bailout funds rather than being channeled through governments, European Union President Herman Van Rompuy said after the two-day summit that ended June 29.
“While Friday’s developments have bought some time for the euro, the bearish case for the currency remains very much intact,” Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore, wrote in a note today. UBS has reiterated its three-month target of $1.20 for the euro, Berry wrote.
Japan’s largest manufacturers expect the yen to trade at an average of 78.93 per dollar in the second half of this fiscal year, the Bank of Japan’s quarterly Tankan report showed today. They forecast 78.24 in a March survey.
Manufacturer sentiment rose to minus 1 in June from negative 4 in March, according to the report. The BOJ is scheduled to hold a two-day policy meeting starting July 11.
‘Pressure Off BOJ’
“On the face of it, the data should take some pressure off the BOJ to ease policy next week,” Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada, wrote in a research note today about the Tankan.
The Reserve Bank of Australia will keep the overnight cash- rate target at 3.5 percent at tomorrow’s policy meeting, according to all 28 economists in a Bloomberg News survey.
The so-called Aussie traded 0.3 percent stronger at $1.0265, after touching $1.0278, the strongest since May 4.
New Zealand’s dollar may rise to the highest in more than two months as its short-term momentum has a “bullish” bias, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a research note yesterday, referring to forecasts the currency will continue to appreciate.
The so-called kiwi is facing an “important” test at the level of 80.60 U.S. cents to 80.90, which sits on a downtrend line from the Feb. 29 high, the analyst wrote. Rising above that may take the currency toward April highs, O’Connor wrote.
Year of Pain
The South Pacific nation’s currency jumped as much as 2 percent on June 29 before trading 0.3 percent higher at 80.40 today. It reached 83.20 on April 13, the highest since March 2.
Derivatives traders see at least a year of pain for the euro even after the currency surged the most in eight months following the approval by European Union leaders of measures aimed at making it easier for Spain and Italy to obtain aid.
Option traders are the most bearish ever on the currency versus the greenback over the next 12 months compared with the next 90 days. More than 50 economists and strategists surveyed by Bloomberg cut their median year-end estimate to the lowest since at least 2007.
