BLBG:Euro Drops Versus Yen on Italy, Economy Concern; Aussie Rallies
The euro fell against the yen before data forecast to show the region’s economy shrank and as Italy edged closer to a new election after an inconclusive vote.
The yen strengthened against most major counterparts after testimony from deputy governor nominees to the Bank of Japan (8301) failed to assure markets that further monetary stimulus was imminent. The euro was 0.5 percent from an almost three-month low against the dollar before European Central Bank President Mario Draghi and his board meet on March 7. Australia’s currency rose for the first time in four days after Reserve Bank refrained from cutting interest rates.
“The Italian situation won’t be resolved soon, so the euro malaise will continue,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “I think the ECB will consider rate cuts going forward. It’s unlikely there will be any euro-buying catalysts from the ECB meeting this week.”
The euro declined 0.5 percent to 121.19 yen as of 6:40 a.m. in London. It was little changed at $1.3033, after touching $1.2967 on March 1, the lowest level since Dec. 11. The yen strengthened 0.5 percent to 92.99 per dollar.
The euro area’s gross domestic product probably fell 0.6 percent in the fourth quarter from the previous three-month period, according to the median estimate of economists surveyed by Bloomberg News before the data tomorrow.
Italy, Germany and France will report monthly purchasing manager index figures for service industries today.
Austerity Vote
The ECB will probably maintain its benchmark rate at 0.75 percent this week, according to a Bloomberg survey. The central bank will also update its December economic forecasts.
“A very weak number is expected for euro area GDP,” said Noriaki Murao, a New York-based managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest listed financial group. “If President Draghi signals any change to the economic outlook, the expectation for a rate cut will ratchet up significantly and put downward pressure on the euro.”
In Rome, a top aide to Democratic Party Pier Luigi Bersani said another election may take place this year after passage of new electoral laws, while members of Beppe Grillo’s faction said they were considering a walkout aimed at breaking the gridlock.
European leaders have demanded that euro members press on with budget cuts to stem the region’s debt crisis even after the Italian electorate revolted against German-inspired austerity measures. The party of comedian-turned-politician Grillo received more than 25 percent of the vote with its anti-spending cut message and a call for a referendum on euro membership.
BOJ Policy
Kikuo Iwata, one of Prime Minister Shinzo Abe’s candidates for deputy governor of the BOJ, said in parliament today that the central bank must expand its monetary base and buy longer maturity bonds. He also said foreign bond purchases aren’t necessary at the moment though should remain as a policy option. Keisuke Tsumura, a lawmaker from Japan’s opposition Democratic Party, said he personally doesn’t support Iwata’s nomination.
BOJ Executive Director Hiroshi Nakaso, the nominee for the second deputy governor, said that it’s hard to say that Japan will definitely meet a 2 percent inflation target in two years. The BOJ adopted that price goal in January amid governmental pressure, and the central bank’s policy board will next convene on March 6-7.
“There was some uncertainty from the BOJ nominee about how long it will take for policy makers to get results,” said Tim Waterer, a senior foreign-exchange dealer at CMC Markets in Sydney. “That’s just added a little doubt to how protracted a process this may be and is contributing to some yen strength.”
RBA Decision
Demand for the Australian dollar was supported after the statistics bureau said retail sales climbed 0.9 percent in January, compared with the median forecast in a Bloomberg survey of a 0.4 percent gain.
The nation’s Reserve Bank left its overnight cash-rate unchanged at 3 percent today, in line with predictions of 27 of the 29 economists in a Bloomberg survey. Governor Glenn Stevens said in a statement that growth in 2012 was led by “very large increases in capital spending in the resources sector,” while reiterating that the inflation outlook “would afford scope to ease policy further, should that be necessary.”
“The RBA was a little bit more upbeat on the outlook for capital expenditure and it continued to say that past easing is having an impact on the economy,” said Khoon Goh, a Singapore- based foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ) “The market has taken Stevens’ comments on resources spending positively and that’s why we’ve seen the Aussie move higher.”
Australia’s dollar gained 0.4 percent to $1.0240 from yesterday.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
