BLBG:Euro Remains Lower on Prospects Draghi to Signal Stimulus
The euro fell for a fourth day against the dollar on speculation European Central Bank President Mario Draghi will hint at further stimulus measures to counter the debt crisis at a press conference today.
The 17-nation currency pared gains versus the yen after Spain’s borrowing costs increased as it sold 2.52 billion euros ($3.31 billion) of notes. The ECB kept its main refinancing rate at 1 percent today, as predicted in a Bloomberg News survey. The dollar rose against most of its major counterparts as investors sought safer assets. New Zealand’s dollar fell to a three-month low after the jobless rate climbed to the highest since 2010.
“Downside risks are increasing for the euro,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. Draghi “could give more encouragement to the market that the ECB stands ready to provide further stimulus if required.”
The euro fell 0.2 percent to $1.3130 at 12:46 p.m. in London after dropping to $1.3122 yesterday, the lowest level since April 23. The 17-nation currency was little changed at 105.51 yen after earlier rising as much as 0.3 percent. The dollar gained 0.3 percent to 80.36 yen.
Draghi will hold a press conference at 2.30 p.m. today in Barcelona. Inflation will slow next year and risks to the economic outlook remain on the downside, he told lawmakers in Brussels on April 25. That’s in contrast to the “upside risks” of inflation he warned of following the ECB’s previous meeting on April 4.
‘Factored In’
“The ECB holding rates has been factored in by the market,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London, said before the announcement. “Draghi’s commentary is more likely to be the focus than the rate decision.”
Spain sold 765 million euros of notes due in January 2017 at an average yield of 4.75 percent, versus 3.57 percent at a previous auction of five-year securities on Feb. 2. It sold three-year debt at an average rate of 4.037 percent, compared with 2.617 percent on March 1.
The increase in Spanish borrowing costs has fueled speculation the effect on bond yields from the ECB’s three-year loans to banks, known as the longer-term refinancing operations, is waning.
Manufacturing Shrinks
The euro dropped 0.6 percent against the dollar yesterday as Markit Economics said its gauge for the region’s manufacturing was below 50 for a ninth month in April, a level that indicates contraction. The jobless rate in the currency bloc was at a 15-year high of 10.9 percent in March, the European Union statistics office said.
“The underlying fundamentals are deteriorating, which points towards an eventual adjustment lower in euro-dollar,” Bank of Tokyo-Mitsubishi’s Hardman said.
The euro has weakened 6.9 percent over the past 12 months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 6.1 percent, and the yen strengthened 5.2 percent.
The Dollar Index (DXY) headed for its first four-day gain since February as economists forecast a government report this week will show U.S. employers stepped up hiring last month.
The U.S. added 160,000 jobs, up from 120,000 in March, according to a Bloomberg survey before the Labor Department releases the figures on May 4.
‘A Lot Better’
“The U.S. dollar will continue to rise, even though some of the U.S. data might weaken a little bit,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia. (CBA) “It’s still a lot better than what is happening in the euro zone.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.1 percent to 79.276 after rising 0.6 percent over the previous three days.
New Zealand’s dollar, known as the kiwi, dropped against all of its major counterparts after unemployment exceeded the most pessimistic forecast in a Bloomberg survey.
The jobless rate climbed to 6.7 percent in the first quarter from a revised 6.4 percent in the previous three months, Statistics New Zealand said.
“The overall unemployment headline number is worse,” said Tim Kelleher, head of institutional foreign-exchange sales at ASB Institutional in Auckland. “The kiwi didn’t like the data.”
New Zealand’s currency dropped 0.9 percent to 80.31 U.S. cents after falling to 80.13 cents, the weakest since Jan. 20.
Lowest This Year
The euro may fall to this year’s low against the dollar should it break below an area of so-called support, Commerzbank AG said, citing trading patterns.
“Euro-dollar has seen significant failure at the $1.3269 and $1.3273 downtrends,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients. Those levels represent the five-month downtrend and the eight-month channel, she said.
The euro is now likely to head toward support at its February low of $1.2974 and at $1.2954, which represents the 61.8 percent Fibonacci retracement of its rally in January and February. “Failure here will target the $1.2624 January low,” she wrote.
Fibonacci analysis is based on the theory prices rise or fall by certain percentages after reaching a new high or low.
To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
