BLBG:Euro Near Week-High Before PMI Reports; Rupee Slides to Record
The euro traded near the highest level in more than a week before manufacturing and services data that may add to evidence of the region’s strengthening recovery from a six-quarter contraction.
The dollar held gains versus most major peers after Treasury yields climbed to a two-year high yesterday and as investors await Federal Reserve meeting minutes due tomorrow for clues on when it will reduce stimulus. India’s rupee slid to a record and Indonesia’s rupiah slumped to the lowest level since April 2009 on concern funds will flow out of Asian markets as the U.S. recovers. New Zealand’s dollar fell after the central bank governor said the currency was overvalued.
“Euro strength has coincided with the first quarter of positive growth in six quarters,” said Andrew Salter, a currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. There are “some signs growth is starting to stabilize.”
The euro rose 0.2 percent to $1.3355 as of 6:15 a.m. in London. It touched $1.3380 on Aug. 16, the highest since Aug. 9. It traded at 130.05 yen from 130.07. The dollar slid 0.2 percent to 97.39 yen.
An index of activity in manufacturing and services in the euro area probably rose to 50.9 in August from 50.5 a month earlier, according to the median estimate of economists surveyed by Bloomberg News before an Aug. 22 report from London-based Markit Economics. A gauge of manufacturing in Germany, the region’s biggest economy, gained to 51.1 this month from 50.7 in July and the services index climbed to 51.7 from 51.3, a separate poll showed. Readings above 50 indicate expansion.
ECB Guidance
The ECB’s commitment “is not an imperative statement, and it doesn’t represent a change” in the monetary policy stance, Germany’s central bank said yesterday in its monthly report. “Forward guidance doesn’t rule out an increase in the benchmark rate if greater inflation pressure emerges.”
Traders raised their expected increase in the ECB’s benchmark rate over the next year to 23 basis points yesterday, near the 26-basis-point level on Aug. 15 that was the highest since June 25, according to a Credit Suisse AG index based on swaps.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, was little changed at 1,023.72 after climbing 0.3 percent in the previous two days.
Minutes Clues
Minutes of the Fed’s July 30-31 meeting may indicate when central bankers plan to trim purchases of $85 billion of debt a month. Officials will probably begin to reduce the buying next month, according to 65 percent of economists surveyed by Bloomberg from Aug. 9-13.
“The market has received sufficient signals such that we now expect a tapering in September and the U.S. dollar has reflected that, especially against low-yielding currencies like the euro and yen,” ANZ’s Salter said.
The yield on 10-year Treasuries was at 2.84 percent today after touching 2.9 percent yesterday, the highest since July 2011.
The rupee sank to a record low 64.12 per dollar before trading 0.8 percent weaker at 63.63. The Indonesian rupiah touched 10,728 per dollar, the weakest since April 2009, according to prices from local banks compiled by Bloomberg.
‘Liquidity Squeeze’
“Until long-term yields in the U.S. stabilize, the threat to global growth and a liquidity squeeze in vulnerable emerging-market countries is heightened,” Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, wrote in an e-mailed note to clients today. “It may turn out that asset market performance is becoming much more dependent on domestic fundamental conditions.”
Of the $155.6 billion investors poured into developed-market equity exchange-traded products in the first seven months this year, North American funds received $102.4 billion or 65.8 percent, according to BlackRock Investment Institute. Japan attracted a record $28 billion, while Europe-focused funds got $4.3 billion. In contrast, $7.6 billion flowed out of emerging-market funds.
The MSCI Asia Pacific Index of shares fell 1.5 percent, set for a four-day loss, which would be the longest string of declines since the period through July 29.
The Australian and New Zealand currencies slid after comments from the nations’ central banks. Minutes released today of the Reserve Bank of Australia’s Aug. 6 meeting signaled further interest-rate cuts remain a possibility. Reserve Bank of New Zealand Governor Graeme Wheeler announced lending restrictions to curtail house prices and said the currency is “over-valued relative to what would be sustainable long-term.”
The Aussie slid 0.6 percent to 90.52 U.S. cents, while the kiwi tumbled 1.2 percent to 79.75 U.S. cents.
To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
