The euro fell against the dollar and extended a weekly loss versus the yen after a German government report showed Europe’s largest economy contracted last quarter by more than economists estimated. The euro also headed for its first weekly loss in a month versus the dollar on concern a European report today will show the region’s economy shrank at the fastest pace in at least 13 years. New Zealand’s dollar fell against all 16 of the most- traded currencies after a report showed retail sales dropped almost twice as fast as economists forecast. South Korea’s won rose as overseas funds bought more local stocks than they sold. “I’m bearish about the euro,” said Takeshi Makita, an economist in Tokyo at Japan Research Institute Ltd., a unit of Sumitomo Mitsui Financial Group Inc., Japan’s third-largest banking group. “Prospects for a meaningful recovery in the region are not bright.” The euro declined to $1.3593 as of 7:36 a.m. in London from $1.3639 in New York yesterday, heading for 0.3 percent loss this week. Europe’s currency fell to 129.93 yen from 130.67 yen, and was set for a 3.2 percent decline this week. The dollar bought 95.59 yen from 95.80 yen. New Zealand’s dollar fell 4.9 percent against the yen this week, the most since Jan. 23. It dropped to 56.53 yen today from 57.16 yen. The so-called kiwi slumped 0.9 percent to 59.12 U.S. cents from yesterday, extending its decline to 2.1 percent this week. South Korea’s won advanced to 1,257.00 per dollar from 1,266.90 yesterday, paring its weekly loss to 0.8 percent. German GDP Germany’s gross domestic product dropped a seasonally adjusted 3.8 percent in the first quarter from the fourth quarter, when it fell 2.2 percent, the Federal Statistics Office in Wiesbaden said today. That’s the deepest slump since quarterly data were first compiled in 1970 and compares with the 3 percent decline estimated by economists in a Bloomberg survey. The yen and the dollar headed for weekly gains versus higher-yielding currencies as stock markets were poised for their first weekly loss in two months. The MSCI World Index fell 3 percent this week as a U.S. government report showed retail sales unexpectedly slumped and China’s exports fell more than economists had estimated, undermining speculation the worst of the international recession has passed. “The trend for the global economy is still likely to be downward,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “Investors remain risk-averse. The dollar and the yen will probably be bought.” The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, rose to 82.530 from 82.279 yesterday and 82.529 at the end of last week. Policy Clash The euro also fell this week as ECB policy makers clashed over the bank’s asset-buying program and the prospects for a recovery. Vice President Lucas Papademos said yesterday a recovery may come sooner than previously thought. Dutch council member Nout Wellink said economists shouldn’t get too optimistic about “green shoots.” The ECB cut its benchmark interest rate to a record 1 percent on May 7 and announced a plan to buy 60 billion euros ($81.8 billion) in covered bonds to loosen credit markets. Gross domestic product in the 16-nation region fell 2 percent in the first quarter from the previous three months, according to a Bloomberg News survey before the European Union’s statistics office releases the report today. New Zealand’s dollar fell after the statistics office said retail sales declined for a record sixth quarter, dropping 2.9 percent, adjusted for inflation, from the previous three months. The median estimate of economists surveyed by Bloomberg News was for a 1.5 percent decline. ‘Grinding Lower’ “The New Zealand dollar is grinding lower after the retail sales shock,” said Sue Trinh, a senior currency strategist at RBC Capital Markets in Sydney. “It all comes down to investor sentiment and whether equities remain strong.” New Zealand’s central bank should cut interest rates further amid easing inflation and a prolonged recession, the International Monetary Fund said. “The significant easing of monetary policy since July has been appropriate,” the Washington-based IMF said in a report posted on its Web site. New Zealand is in the sixth quarter of a recession that the central bank has described as the worst in more than three decades. Reserve Bank Governor Alan Bollard has cut the official cash rate by 5.75 percentage points since July to a record 2.5 percent and said last month he is unlikely to increase borrowing costs until late 2010. Libor Drops Demand for the dollar may weaken after the London interbank offered rate for three-month dollar loans, or Libor, declined to a record low of 0.85 percent yesterday, indicating banks are becoming more willing to lend. “Should credit fears ease further, financial institutions, which have built up huge amount of dollar holdings in times of crisis, may start spending in other currencies,” Taisuke Tanaka, managing director and foreign-exchange strategist in Tokyo at Nomura Securities Co., a unit of Japan’s largest securities broker. “If this happens, the dollar may become the weakest currency against almost all currencies.” South Korea’s won rose for the first time in four days against the dollar as bank borrowing costs declined, spurring demand for emerging-market assets. “We’re now seeing foreign institutional investors coming back and buying equities in quite a major way,” said Peter Redward, Singapore-based head of research for emerging Asia at Barclays Plc in a Bloomberg Television interview. “In the short term, people have been buying into the won recovery story. We’re looking for around 1,175 in one year’s time.”

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