The euro fell against the dollar on speculation mounting debt concerns and signs of economic slowdown will compel the European Central Bank to increase monetary stimulus at its meeting tomorrow. The 17-nation euro failed to extend its biggest jump in more than five months versus the yen as traders increased bets the ECB will lower borrowing costs and before a report today forecast to show the region’s retail sales declined in August. The greenback gained against most major peers after Federal Reserve Chairman Ben S. Bernanke signaled willingness to step up measures to spur U.S. growth. The Australian dollar weakened as Asian stocks reversed an earlier gain. The European economy “is looking softer on some key measures,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “I think they will cut rates on Thursday. We’ll see the euro more likely to be lower than higher from current levels.” The euro fell to $1.3303 as of 6:30 a.m. in London from $1.3349 in New York yesterday. The common currency slipped to 101.97 yen from 102.54 yen, after strengthening 1.6 percent yesterday, the sharpest increase since April 27. The dollar fetched 76.65 yen from 76.81. Retail sales in the euro region probably dropped 0.3 percent in August after a 0.2 percent increase the previous month, according to the median estimate of economists surveyed by Bloomberg News before today’s report. ECB Rates Signs that the euro area’s debt crisis is hampering growth have prompted speculation the ECB will lower borrowing costs tomorrow. Eleven of 52 economists surveyed by Bloomberg said it will cut its benchmark interest rate by at least a quarter- percentage point from the current rate of 1.5 percent at its Oct. 6 policy meeting. The others expect no change. Economists at Royal Bank of Scotland see a 60 percent chance the ECB will cut interest rates by 25 basis points tomorrow, according to Gibbs. Swaps traders are betting the central bank will lower its main rate by 55 basis points over the next 12 months, according to a Credit Suisse Group AG index. That compares with a 25 basis-point increase projected at the beginning of August. The euro weakened versus the yen as Moody’s Investors Service said European countries with debt ratings below the top Aaa level may see their rankings lowered. ‘Negative Pressure’ “All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings,” Moody’s said in a statement yesterday. “Consequently, Moody’s expects fewer countries below Aaa to retain high ratings.” It added that “there are no immediate pressures that could cause downgrades for Aaa-rated countries.” The statement came after the company cut Italy’s rating for the first time since 1993 on concern the government will struggle to reduce the region’s second-largest debt amid chronically weak growth. Italy was cut three levels to A2 from Aa2. Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years. “Worries are ongoing about the euro-zone crisis,” said Yuji Saito, director of the foreign-exchange department at Credit Agricole Corporate and Investment Bank in Tokyo. “The Moody’s downgrade of Italy’s rating and its report on credit pressures aren’t good news. This is probably causing selling of the euro.” Fed Options The Fed can give more information about its pledge to keep interest rates low at least through mid-2013, reduce the rate paid on banks’ reserve deposits or purchase more securities, Bernanke said yesterday in testimony to Congress’s Joint Economic Committee in Washington, reiterating options he mentioned in July. Responding to a question, he said the central bank has no immediate plans for another round of large-scale asset purchases, known as quantitative easing. At the same time, he said, the Fed doesn’t take “anything off the table.” The Fed chairman is struggling to find ways to reduce unemployment stuck at 9 percent and avert a second recession in three years after deploying unconventional stimulus tools in August and September. A survey by ADP Employer Service today may show U.S. employers added 73,000 workers to payrolls in September, following a 91,000 gain the prior month, economists polled by Bloomberg News said. The jobless rate was probably 9.1 percent last month, a separate survey showed before an Oct. 7 report from the Bureau of Labor Statistics. Helped the Dollar “Bernanke actually helped the U.S. dollar slightly by not sounding as though he’s in a hurry” to implement a third round of quantitative easing, said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “Momentum is definitely moving back in the dollar’s favor.” The greenback gained 7.6 percent in the past month, the second-best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has appreciated 8 percent in the same period. The so-called Aussie weakened against its U.S. and Japanese counterparts as the MSCI Asia Pacific Index of stocks declined 0.1 percent after earlier advancing 0.6 percent, sapping demand for higher-yielding assets. Australia’s currency fell to 95.37 U.S. cents from 95.72, and dropped 0.6 percent to 73.11 yen. To contact the reporters on this story: Monami Yui in Tokyo at myui1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

Source