BLBG:Euro Near 2-Week Low, Poised for Weekly Drop, on Draghi Warning
The euro was poised for its biggest five-day drop in seven months after European Central Bank President Mario Draghi said recent currency gains may slow inflation and growth, damping demand for the region’s assets.
The 17-nation currency was 0.2 percent from a two-week low against the greenback as European Union leaders meet to seek agreement on the 2014-2020 budget. New Zealand’s dollar climbed after data showed exports and imports in China, the South Pacific nation’s second-largest trading partner, rose more than economists forecast. The yen advanced as stocks declined and a technical indicator signaled recent losses have been too rapid.
“The risks of a rising currency to economic growth in the region is something that the market has taken note of, and the ECB delivered a stark reminder that their policy will remain accommodative,” said Jim Vrondas, the chief currency and payments strategist for the Asia-Pacific region at OzForex Ltd. in Sydney. “Their actions should continue to serve to weaken the euro.”
The euro traded at $1.3403 as of 6:59 a.m. in London, set for a 1.7 percent weekly drop, the steepest since July. It yesterday touched $1.3371, the least since Jan. 25. The currency fell 0.3 percent to 125.07 yen, sliding 1.3 percent since Feb. 1, its first five-day drop in nine weeks.
The yen added 0.3 percent to 93.31 per dollar, paring its decline for the week to 0.5 percent. It’s set for an unprecedented 13th weekly drop versus the U.S. dollar.
Europe’s shared currency has strengthened 2.2 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.5 percent and the yen tumbled 7.3 percent.
Euro Strength
There are downside risks to inflation “stemming from weaker economic activity and, more recently, the appreciation of the euro exchange rate,” according to a statement of Draghi’s remarks yesterday placed on the ECB’s website. The central bank kept its benchmark rate at a record-low 0.75 percent.
A promised EU investment budget to modernize the recession- hit economy is set to be scaled back amid competing national demands. A summit deadlock over the 2014-2020 budget would hobble subsidy programs, force the EU to fall back to annual budget extensions and add to concerns about Europe’s political cohesion.
Hung Parliament
An Italian election in two weeks may yield a hung parliament, requiring a follow-up vote to establish a governing majority, a member of poll leader Pier Luigi Bersani’s campaign said for the first time yesterday.
The yen gained against all 16 major peers as the MSCI Asia Pacific Index of stocks declined 0.3 percent.
Japan’s currency is likely to be consolidating between 90 yen and 94 yen for the next few months, said Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. Investors may wait to buy the dollar against the yen on moves toward the 90-yen level, looking for further yen weakness in the second half of the year, he said.
“We’re going to test the lower side of the range with a bit of risk aversion around in Europe,” Gibbs said. “As we approach the Italian election, the risk is that we see the yen strengthen.”
The yen’s 14-day relative strength index against the dollar was at 28, below the 30 level that signals to some traders that a currency has fallen too far, too fast and is poised for a reversal.
The currency briefly declined versus the dollar as Japan’s Ministry of Finance reported a 264.1 billion yen ($2.8 billion) shortfall for December in the widest measure of the nation’s trade, compared with a forecast deficit of 144.2 billion yen. It was the first back-to-back monthly current-account deficits since 1981.
RBA Statement
New Zealand’s dollar climbed for the first time in three days after China’s customs administration said exports advanced 25 percent in January from a year earlier while imports increased 28.8 percent, exceeding economists’ estimates.
The so-called kiwi rose 0.3 percent to 83.51 U.S. cents.
Australia’s dollar was set to drop for a fourth-straight week against the U.S. currency as the Reserve Bank predicted “below trend” 2013 growth.
The so-called Aussie gained 0.1 percent to $1.0290 from yesterday. It’s still poised for a 1.1 percent decline this week.
Currency volatility will probably increase this year as volumes climb, Citigroup Inc. said, citing trading platform and central bank figures.
Combined average daily volume on currency trading platforms by CME Group Inc., Thomson Reuters Corp. and ICAP Plc was at $381 billion last month, up from $290 billion in December and $339 billion a year earlier, according to data compiled by Greg Anderson, Citigroup’s North American head of Group-of-10 currency in New York.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
