The euro weakened for the first time in four days against the yen amid speculation the European Central Bank will cut interest rates to a record-low 0.5 percent at a meeting today. The 17-nation currency snapped a four-day gain versus the dollar as a euro-area report showed the region’s manufacturing industry contracted at a faster pace last month. The yen strengthened against all except two of its 16 major counterparts as China’s factory output slowed, spurring demand for the relative safety of Japan’s currency. Sweden’s krona weakened as manufacturing in the nation unexpectedly shrank. “The question is whether they will cut rates or not,� said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “It certainly seems that the weakness of the euro-region economy is one of the bigger burdens on the euro. If they were to not cut rates, it would be a disappointment for the market and be euro positive.� The euro declined 0.3 percent to 128.02 yen at 11:31 a.m. London time after rising 0.5 percent during the previous three days. Europe’s currency fell 0.1 percent to $1.3163. The yen gained 0.1 percent to 97.26 per dollar after appreciating to 97.01 on April 30, the strongest since April 16. The ECB will cut its main refinancing rate by a quarter percentage point when policy makers meet today, according to the median estimate of 70 economists in a Bloomberg News survey. The decision is due at 1:45 p.m. in Bratislava, where the Governing Council is meeting. Draghi holds a press conference in the Slovakian capital 45 minutes later. Manufacturing Contracts A gauge of manufacturing in the euro area declined to 46.7 last month from 46.8 in March, London-based Markit Economics said. The reading has been below 50, which indicates contraction, for 21 consecutive months. The euro has dropped 1.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The dollar gained 2.4 percent and the yen tumbled 2.8 percent. The yen strengthened the most against higher-yielding currencies such as the Australian dollar after HSBC Holdings Plc and Markit Economics said their index of Chinese manufacturing fell to 50.4 in April from 51.6 the previous month. “The yen still hasn’t completely shaken off its safe-haven mantel,� said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “During periods of market stress dollar-yen has tended to buck the upward trend that it’s been in.� BOJ Minutes Minutes of the central bank’s April 3-4 meeting released today showed some Bank of Japan board members said there exists a “great opportunity� to end deflation. At that gathering, the central bank agreed to double holdings of government bonds and stock funds to reach its target of 2 percent annual inflation. Sweden’s krona weakened for the first time in seven days against the dollar after Swedbank AB (SWEDA) said its index manufacturing based on a survey of purchasing managers dropped to 49.6 in April from 52.1 the previous month. The central bank last month pushed back plans to increase its main lending rate, in part as a strengthening krona has reduced inflation. The Riksbank predicts it won’t raise its 1 percent repo rate until late next year. The krona fell 0.3 percent to 6.4856 per dollar and weakened 0.1 percent to 8.5351 per euro. The currency has strengthened 3.9 percent against the dollar and the euro during the past 12 months, making exports less competitive. To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

Source