BLBG:Euro Set For Weekly Loss Before Spanish, German Output
The euro headed for its biggest weekly decline in more than six months amid signs the region’s debt crisis is weighing on economic growth.
The 17-nation currency held a two-day fall against the yen before data today forecast to show industrial production in Germany and Spain declined. The European Central Bank and the People’s Bank of China cut their benchmark borrowing costs yesterday, while the Bank of England expanded the size of its asset-purchase program.
“The economic fundamentals surrounding the euro area look dire,” said Takuya Kawabata, researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency- margin company. “We can’t expect any economic indicators that can bolster the euro.”
The euro slid 0.1 percent to $1.2379 as of 12:55 p.m. in Tokyo from $1.2392 yesterday, when it touched $1.2364, the lowest since June 1. The shared currency is poised for a 2.3 percent drop this week, the sharpest decline since the five days ended Dec. 16. Europe’s currency was little changed at 98.98 yen, set for a 2 percent weekly slide. The greenback bought 79.95 yen from 79.92 yen.
German industrial output probably declined 1.2 percent in May from a year ago, according to economists surveyed by Bloomberg News before the Economy Ministry in Berlin releases its figures.
A separate survey indicated Spanish production at factories, refineries and mines adjusted for the number of working days fell 8.1 percent from a year earlier. The National Statistics Institute is due to issue the data in Madrid.
‘Downside Risks’
“Downside risks to the euro-area economic outlook have materialized,” ECB President Mario Draghi said yesterday after cutting the main refinancing rate by a quarter-percentage point to a record low and reducing interest on overnight deposits to zero. “Economic growth in the euro area continues to remain weak with heightened uncertainty,” he said.
The euro may drop to 77.84 pence, a level unseen since October 2008, after it fell below the so-called trendline that connects the lows of May and June, according to UBS AG, citing trading patterns.
The target is the 61.8 percent retracement from the January 2007 low to the December 2008 high on the Fibonacci chart, according to Richard Adcock, a London based fixed-income and foreign exchange technical strategist at UBS. The euro “has seen a trade below the uptrend connecting the recent lows, suggesting a bearish breakout has developed,” he wrote in a research note yesterday.
The shared currency was at 79.73 pence from 79.81 yesterday, when it touched 79.65, a level unseen since May 16.
Worst Performers
The euro and the Swiss franc have weakened 1.5 percent in the past week, the worst performances among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Australian dollar was the biggest gainer, rising 1.2 percent, while the yen strengthened 0.8 percent.
Demand for yen was limited after China cut its key interest rate for the second time in a month yesterday and the Bank of England raised the target in its asset-purchase stimulus program by 50 billion pounds ($78 billion) to 375 billion pounds.
“Global central banks are taking action to bolster growth,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “China’s interest-rate cut is positive for risk appetite in a sense that such efforts help support the world economy. Risky currencies such as the Aussie are starting to decouple from the euro.”
U.S. Employment
A U.S. government report today may show American employers increased payrolls by 100,000 workers last month, according a Bloomberg poll of economists. The unemployment rate probably held at 8.2 percent in June from the previous month, another survey projected.
The Dollar Index (DXY) rose to a one-month high yesterday after ADP Employer Services report showed U.S. companies added 176,000 workers in June, more than the median economist estimate of a 100,000 advance. The gauge, which the Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fetched 82.88 from 82.81 yesterday, when it touched 82.95, the highest since June 4.
Applications for jobless benefits fell by 14,000 last week to 374,000, the fewest since mid-May, Labor Department data showed yesterday.
The Federal Reserve bought $2.3 trillion of bonds in two rounds of so-called quantitative easing, or QE, from December 2008 to June 2011, seeking to cap borrowing costs and stimulate the economy. Last month, it expanded the program known as Operation Twist that replaces short-term Treasuries in its portfolio with longer-term debt.
“The dollar will be bid should the employment number beat estimates,” Gaitame’s Kawabata said. “I don’t think the situation in the U.S. warrants another round of quantitative easing from the Fed yet.”
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
