BLBG:Euro Drops Versus Yen on Bets ECB to Hold Policy
The euro weakened for a second day against the yen amid speculation European Central Bank President Mario Draghi will use a press conference today to reiterate a commitment to keeping monetary policy accommodative.
The shared currency fell versus most of its 16 major counterparts after a euro-area report yesterday showed service activity shrank last month, even though at a slower pace. The pound slumped after the Bank of England said increasing yields were weighing on the economy. South Korea’s won strengthened as the government said it would boost policies to add service jobs. The U.S. Labor Department will release its monthly employment report tomorrow.
“The economic data are improving but are still weak, so we think the press conference will be quite dovish,” said Marcus Hettinger, a currency strategist at Credit Suisse Group AG in Zurich. “That should be slightly negative for the euro. We’ll probably stay below $1.30 but we don’t expect a major move because we have the payrolls tomorrow.”
The euro weakened 0.2 percent to 129.78 yen at 12:07 p.m. London time after declining 0.5 percent yesterday. The common currency was little changed at $1.3015 after sliding to $1.2923 yesterday, the lowest level since May 29. The yen advanced 0.2 percent to 99.75 per dollar.
U.S. financial markets will remain closed today for the Independence Day holiday.
‘Stay Accommodative’
The ECB’s monetary policy “will stay accommodative for the foreseeable future” and policy makers stand ready to act to support growth, Draghi said in a speech in Paris on June 26. An exit remains “very distant,” he said at a press conference.
The ECB will keep its benchmark interest rate at a record low of 0.5 percent today, according to all except one of 62 forecasts in a Bloomberg survey. Draghi will hold a press conference at 2:30 p.m. in Frankfurt to explain the decision.
The euro has weakened 2.2 percent against the dollar since June 19 when Federal Reserve Chairman Ben S. Bernanke said U.S. policy makers may start slowing the pace of bond buying, or quantitative easing, this year if the economy meets the central bank’s projections.
“The ECB statement could see an increased emphasis on forward guidance, while also highlighting an implicit contrast between the Fed’s QE tapering signal and the ECB’s accommodative stance,” BNP Paribas SA currency strategists Vassili Serebriakov and Daniel Katzive in New York wrote in a note to clients. “We expect a dovish message today to lead to decreased front-end yield support for the euro.”
The euro has gained 4.8 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 6.5 percent, the best performer, and the yen tumbled 8.8 percent.
Pound Declined
The pound fell against all of its 16 major counterparts as the Bank of England issued a statement with its rate decision saying higher market rates was weighing on the economic outlook.
The U.K. Monetary Policy Committee kept its quantitative-easing target at 375 billion pounds ($567 billion) and the benchmark interest rate at 0.5 percent.
“The data point to the economy growing, so it’s quite hard for them to justify anything too dovish at this point,” Paul Robson, a senior currency strategist at Royal Bank of Scotland Group Plc in London, said before the decision.
The pound fell 1.2 percent to $1.5108 after dropping to $1.5105, the lowest level since May 28. The U.K. currency declined 1.1 percent to 86.08 pence per euro.
South Korean Finance Minister Hyun Oh Seok said the government will provide more support to enhance employment in some “promising” areas to help fuel economic growth.
The won strengthened 0.5 percent to 1,138.45 per dollar after weakening 0.9 percent yesterday.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
