BLBG:Dollar Trades Near 2-Week Low Versus Euro Before U.S. GDP
The dollar traded 0.3 percent from a two-week low against the euro before data today forecast to show the U.S. economy expanded at the slowest pace in a year.
The greenback headed for a weekly loss versus most of its major peers amid speculation the Federal Reserve will engage in a third round of quantitative easing, or QE3. The euro maintained a two-day advance against the dollar and yen after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the 17-nation currency. Australia’s dollar rose as Asian shares headed for their biggest gain this month, supporting demand for riskier assets.
“The combined possibility that the Fed begins to pave the way for QE3 and that we see, for instance, a reopening of the Securities Markets Program from the ECB would argue for a softer dollar and risk-on at least in the short-term,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney, referring to the respective asset-purchase programs of the U.S. and euro-area central banks.
The dollar slid 0.1 percent to $1.2288 per euro as of 6:44 a.m. in London from the close in New York yesterday, when it touched $1.2330, the weakest since July 10. It has fallen 1.1 percent this week. The greenback fetched 78.22 yen from 78.21, set for a 0.3 percent loss since July 20. The euro traded at 96.12 yen, after yesterday climbing 1.1 percent to 96.07.
The MSCI Asia Pacific Index of regional shares rose 1.8 percent today, set for the sharpest gain since June 29. The Standard & Poor’s 500 Index (SPX) climbed 1.7 percent yesterday, while the Stoxx Europe 600 Index rallied 2.5 percent.
U.S. Growth
U.S. gross domestic product, the value of all goods and services the nation produced, probably expanded at a 1.4 percent annual rate after a 1.9 percent gain in the previous quarter, according to the median forecast of economists surveyed by Bloomberg News ahead of today’s data.
Fed Chairman Ben S. Bernanke said last week that policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.” The Fed will hold a two-day policy meeting starting July 31.
Bernanke is scheduled to deliver a speech to central bankers on Aug. 31 at an annual conference in Jackson Hole, Wyoming. During the 2010 event, he foreshadowed a second round of asset purchases, dubbed QE2 by traders.
Japanese CPI
The yen was lower against most of its major counterparts after government data showed Japan’s consumer price index declined, evidence that the nation is struggling to defeat deflation.
Consumer prices excluding fresh food fell 0.2 percent in June from a year earlier, the statistics bureau said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg was for no change. Bank of Japan (8301) Governor Masaaki Shirakawa has said the central bank will pursue “powerful monetary easing” until its 1 percent inflation goal set in February is in sight.
“The CPI spurred a little bit of yen selling,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA. (ACA) “The data confirmed that Japan is still in deflation. Expectations for further easing by the BOJ are likely to increase.”
Draghi’s Promise
Yesterday’s pledge by ECB President Draghi prompted speculation policy makers may be preparing to unveil new measures to fight the region’s debt crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm Europe’s rescue funds. ECB council member Ewald Nowotny said this week there were arguments in favor of giving the region’s rescue fund a banking license, which would provide it with greater firepower.
Draghi delivered his remarks at the Global Investment Conference in London, saying surging sovereign-bond yields may fall within the ECB’s jurisdiction. Spanish 10-year rates have exceeded the 7 percent level that prompted bailouts for Greece, Portugal and Ireland.
The common currency has dropped 4.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes, the worst performance among the 10 currencies tracked by the gauge. The yen has gained 6.9 percent and the dollar strengthened 3.9 percent over the same period.
Demand for the euro was limited on prospects data next week will add to evidence that Europe’s fiscal woes are hampering growth in the region’s economies.
Consumer Confidence
A July 30 report from the European Commission in Brussels will probably confirm its index of household sentiment in the euro area declined to an almost three-year low of minus 21.6 in July, according to economists in a Bloomberg News survey.
“You have a combination of concerns in Europe: the economic cycle, which is still pointing down, and the European crisis,” said Callum Henderson, global head of currency research at Standard Chartered in Singapore. “We’re still looking for $1.18 for the euro for the end of the quarter.”
Australia’s currency gained for a third day as Asian stocks rose second day. It climbed to $1.0419, 0.2 percent above yesterday’s close in New York.
The so-called Aussie dollar may climb further to the $1.0558 level reached March 27 after its moving average convergence/divergence held above zero, according to Richard Adcock, London-based head of fixed-income technical strategy at UBS AG. The move would become more likely if other momentum indicators such as the stochastic oscillator add to signs of strength, he wrote in a note to clients yesterday.
Investors should buy the Aussie at a close above $1.0350, targeting $1.0550 with a stop-loss order at $1.0170, according to Adcock. A stop loss is a preset instruction to exit a trade at a certain level in case a bet goes the wrong way.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
