BLBG:Euro Weakens Versus Peers Before German Confidence Data
The euro weakened from four-month highs against the yen and dollar before a German report forecast to show investor confidence in Europe’s largest economy was near the lowest level this year.
The 17-nation euro snapped a five-day advance versus the yen as Spain sold 4.6 billion euros ($6 billion) of short- maturity debt amid concern the government of Prime Minister Mariano Rajoy will refrain from seeking financial assistance. Australia’s dollar fell for a second day after minutes of the Reserve Bank’s September meeting showed officials believed the currency’s strength was a risk to the economy. The Swiss franc rose against all its major counterparts.
“The economic outlook in the euro area is still tough with lead indicators pointing to soft activity,” said Tom Levinson, a currency strategist at ING Groep NV in London. “There are also major risks out there for the euro, particularly in terms of Spain requesting help.”
The euro dropped 0.3 percent to 102.94 yen at 9:55 a.m. in London after rising to 103.86 yesterday, the highest since May 9. The shared currency weakened 0.2 percent to $1.3086. It appreciated to $1.3172 yesterday, the strongest since May 4. The yen was little changed at 78.66 per dollar.
Germany’s ZEW Center for European Economic Research will say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, was at minus 20 this month, according to a Bloomberg News survey. The gauge slid to minus 25.5 in August, the lowest this year.
Relative Strength
The euro’s 14-day relative strength index versus the dollar and the yen remained above 70 today, a level that some traders see as a sign an asset is overvalued and may be poised to reverse direction.
The European Central Bank on Sept. 6 unveiled an unlimited bond-purchase program to cap borrowing costs of the region’s indebted nations, spurring a rally in the common currency.
The ECB’s intervention in Spain is conditional upon Prime Minister Mariano Rajoy requesting a financial bailout and implementing further austerity measures. The nation sold 12- month bills at 2.835 percent, compared with 3.07 percent when they were last auctioned on Aug. 21, and 18-month bills at 3.072 percent, compared with 3.335 percent. It is scheduled to sell securities due in three and 10 years on Sept. 20.
“The euro region’s economy will worsen because of austerity measures,” said Daisaku Ueno, a senior foreign- exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The euro is more likely to decline when investors recognize the worsening of Europe’s economy and how deeply rooted the debt crisis is.”
Euro’s Decline
The euro weakened 3.9 percent in the past 12 months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 1.5 percent and the yen fell 2.8 percent.
The yen advanced versus all except one of its 16 major counterparts as Japan’s central bank started a two-day policy meeting. Five of 21 economists surveyed by Bloomberg predict policy makers will announce further monetary easing tomorrow.
The BOJ increased a fund to buy assets such as government debt by 5 trillion yen to 45 trillion yen in July, and has kept its target for overnight lending between zero and 0.1 percent since October 2010.
“A lack of additional monetary easing could risk a stronger yen,” said Mitsubishi UFJ’s Ueno said. The BOJ will probably increase its asset-purchase program by about 5 trillion yen, he said.
Franc Strengthens
The Swiss franc strengthened as the government’s so-called expert group cut its growth forecast for this year and next as the debt crisis in the euro area slowed exports.
Swiss gross domestic product will rise 1 percent this year instead of a previously projected 1.4 percent, the State Secretariat for Economic Affairs in Bern said in an e-mailed statement today. The franc strengthened 0.4 percent to 1.2120 francs per euro. It weakened yesterday to the lowest since January 6.
The Australian dollar dropped for a second day versus the U.S. currency after the central bank minutes.
“The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth,” according to the Reserve Bank of Australia minutes released in Sydney.
Central bank officials “acknowledged risks from China and weaker commodity prices in particular and thus have a bias to cut, but did not show real urgency,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “Risks are a bit more weighted to the downside” for the Aussie, he said.
The Australian currency fell 0.4 percent to $1.0434 after climbing to $1.0625 on Sept. 14, the highest since March 20.
To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
