BLBG:Euro Declines Against Dollar Before GDP Report; Aussie Weakens
The euro declined for a third day against the dollar before data this week that analysts said will show the 17-nation currency bloc’s economy contracted for a sixth consecutive quarter in the three months through March.
The shared currency was little changed after rising to the highest level in more than three years against the yen before euro-area finance ministers meet in Brussels today. The dollar rose versus 11 of its 16 major counterparts after benchmark 10-year Treasury yields climbed to the most in seven weeks. Australia’s dollar weakened for a sixth day, the longest losing streak in almost a year, as Treasurer Wayne Swan is forecast to project a fifth and sixth year of budget deficits tomorrow.
“We are going to see growth numbers which are likely to be fairly disappointing, underlining the fact that the euro is vulnerable,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There’s also a realization that the dollar story is holding up fairly well when we have 10-year Treasury yields at 1.90 percent. We expect more weakness in the euro, and see it trading below $1.25 towards the end of this year.”
The euro dropped 0.1 percent to $1.2981 at 6:40 a.m. New York time. It slipped 0.1 percent to 131.86 yen, after rising to 132.40, the highest since January 2010. The Japanese currency was little changed at 101.59 per dollar after depreciating to 102.15, the weakest level since October 2008.
GDP Contraction
Euro-region gross domestic product shrank 0.1 percent in the first quarter, after contracting 0.6 percent in the previous three months, the European Union’s statistics office in Luxembourg will say May 15, according to the median estimate of 39 economists in a Bloomberg News survey.
The U.S. economy expanded at a 2.5 percent annualized rate in the first quarter, the Commerce Department in Washington said April 26. A report from the department at 8:30 a.m. local time today will show retail sales fell for a second month in April, based on a Bloomberg News survey of economists.
Federal Reserve Bank of Philadelphia President Charles Plosser said May 9 that U.S. unemployment will probably fall to 7 percent at the end of 2013 and he would favor reducing the Fed’s $85 billion monthly pace of bond-buying next month. His remarks highlight a debate within the Federal Open Market Committee on whether to expand or curb the pace of asset purchases that pumped up the central bank’s balance sheet to $3.32 trillion.
Recovery Entrenched
“We see the Fed still tapering their bond purchases at some stage in the second half of the year, something that should bolster the dollar more widely,” said John Horner, a currency strategist in Sydney at Deutsche Bank AG, in a Bloomberg Television interview. “The U.S. economic recovery is very much entrenched at this point, and we don’t need that sort of stimulus for any longer.”
Futures traders increased their wagers that the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed last week. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase, so-called net shorts, was 78,560 on May 7, compared with net shorts of 71,127 a week earlier.
Treasury 10-year note yields were at 1.90 percent after touching 1.94 percent, the highest since March 26, according to Bloomberg Bond Trader data.
Australia’s dollar slid to an 11-month low before Swan announces the nation’s budget tomorrow, after saying yesterday that the strong currency gave an “unprecedented whack” to tax revenue.
National Australia Bank Ltd. said today its index of business confidence in the South Pacific nation fell to minus 2 in April, the lowest since November, from 2 in March. The nation’s central bank lowered interest rates to a record-low 2.75 percent on May 7.
The so-called Aussie fell 0.5 percent to 99.71 U.S. cents after touching 99.54, the weakest since June 14.
To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
