BLBG: Euro Falls Toward Four-Month Low as Output Contracts; Yen Rises
The euro fell toward a four-month low against the dollar after a report showed services and manufacturing output in the region contracted in March, adding to signs the economy is struggling to emerge from recession.
Europe’s shared currency weakened against all but two of its 16 major peers after separate data showed manufacturing production in Germany shrank. It pared its drop after Demetris Syllouris, leader of Cyprus’s European Party, said he’s confident the nation can reach a deal on a financial rescue. The yen strengthened even as Japan’s central bank governor Haruhiko Kuroda vowed to pursue bold monetary easing. New Zealand’s dollar rose as data showed the economy grew last quarter.
“The weak economic data is hitting the euro, sentiment is very fragile,” said Antje Praefcke, a senior currency strategist at Commerzbank AG in Frankfurt. “Germany is one of the locomotives of euro-zone growth, so people are likely to become a little bit more cautious. The euro is likely to remain under pressure.”
The euro fell 0.2 percent to $1.2913 at 8:16 a.m. New York time. It dropped to $1.2844 on March 19, the lowest since Nov. 22. Europe’s shared currency slid 0.9 percent to 123.02 yen. Japan’s currency appreciated 0.8 percent to 95.28 per dollar after reaching 96.71 on March 12, the weakest since August 2009.
A composite index based on a survey of purchasing managers in the euro-region services and manufacturing industries fell to 46.5 from 47.9 in February, London-based Markit Economics said today. Analysts had forecast a reading of 48.2, according to the median of 23 estimates in a Bloomberg survey. A reading below 50 indicates contraction.
Economy Shrinks
A similar gauge based on purchasing managers in Germany’s manufacturing industry unexpectedly fell to 48.9 this month from 50.3 in February.
Europe’s shared currency will stay under pressure until a rescue deal for Cyprus is finalized, Praefcke said.
The Cypriot parliament this week rejected a proposed levy on bank deposits to raise 5.8 billion euros, which euro-area finance ministers backed as a condition for the country’s bailout. A bank holiday in Cyprus has been extended to March 25, giving policy makers until Monday to find a compromise to prevent a collapse of the country’s banks.
Proposals being discussed for a new plan don’t include a levy on bank deposits, Syllouris said in comments to reporters in Nicosia broadcast on state-run television after President Nicos Anastasiades met with political party leaders.
‘Euro Pullback’
“The near-term risks are for a euro pullback” to as low as $1.2660, Hans Redeker, head of global foreign-exchange strategy at Morgan Stanley in London, wrote in a note to clients. “The prolonged closure of the banks and the lack of progress so far have increased risks. We maintain our strategy of looking to sell rebounds in the near term.”
The euro has lost 1.3 percent in the past month according to Bloomberg Correlation-Weighted Indexes which track the currencies of 10 developed nations. The dollar strengthened 1 percent, the indexes show.
The yen has fallen 7.2 percent in 2013, according to the indexes, amid speculation new BOJ leadership would heed Prime Minister Shinzo Abe’s call for additional easing. Kuroda said today he plans to pursue bold easing in quality and quantity.
New Zealand’s dollar climbed after the statistics bureau said gross domestic product increased 1.5 percent in the three months ended Dec. 31 from the previous quarter, when it expanded 0.2 percent. Growth exceeded all of the estimates in a Bloomberg survey of economists and was almost twice the central bank’s 0.8 percent forecast.
“It looks like buoyant economic activity in New Zealand will be sustained,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “That’s swayed some doubts about the New Zealand economy and seen the New Zealand dollar enjoy a pretty strong bounce.”
The so-called kiwi advanced 1.3 percent to 83.34 U.S. cents, the strongest level since March 6.
To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
