BLBG:Euro Is Near 22-Month Low After European Summit Clash
The euro was 0.3 percent from the lowest level since July 2010 after German Chancellor Angela Merkel said following a European Union summit that her nation stands by its opposition to jointly issued common bonds.
The 17-nation currency maintained a drop versus the yen before data forecast to show Europe’s services and manufacturing industries shrank for a fourth month. The Japanese and U.S. currencies remained higher after gaining yesterday against most major counterparts on increasing demand for haven assets amid Europe’s deepening debt crisis.
“The euro remains in a bearish trend,” said Callum Henderson, global head of currency research in Singapore at Standard Chartered Plc. “There needs to be a greater focus on growth, but at the same time, there also has to be a credible long-term plan for fiscal and debt consolidation throughout the region. At the moment, you have neither” for Europe, he said.
The euro was at $1.2577 as of 6:40 a.m. in London from $1.2582 at the close in New York yesterday, when it touched $1.2545, the least since July 13, 2010. The common currency traded at 99.99 yen after losing 1.4 percent to 100 yen yesterday. The dollar was little changed at 79.50 yen.
Merkel laid out the German position that “much stronger economic cooperation” in the region is needed before euro bonds can be issued, speaking to reporters in Brussels after the summit. European Council President Herman Van Rompuy said leaders are not under any pressure to introduce euro bonds.
Hitting an Iceberg
Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro-area finance ministers, said he didn’t ask the 17 members of the currency bloc to prepare contingency plans for the possibility of Greece leaving the euro. An inconclusive May 6 ballot in Greece raised speculation it will scuttle austerity measures imposed upon the nation after two bailouts and have to leave the euro. New elections loom on June 17.
“Looking at Europe’s situation, I can’t help thinking of the Titanic,” said Noriaki Murao, managing director of the marketing group in New York at the Bank of Tokyo-Mitsubishi UFJ Ltd. “The euro, like the Titanic, has crashed into an iceberg. It’s being inundated with water, but passengers are ignoring it, eating dinner and listening to music as though nothing has happened.”
A euro-area composite index based on a survey of purchasing managers in manufacturing and service industries probably fell to 46.6 this month from 46.7 in April, according to the median estimate of economists surveyed by Bloomberg News. A reading below 50 indicates contraction. London-based Markit Economics will release the figure today.
Dollar Strength
The dollar gained 4.5 percent over the past month, Bloomberg Correlation-Weighted Indexes show, as investors sought the safest assets. The yen, the best performer among the 10 developed-nation currencies tracked by the indexes, has added 7.2 percent, while the euro lost 0.9 percent.
“It seems likely that the dollar will be reasonably well bid,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “People are concerned about what the implications of a Greece exit from the euro zone might be. That’s feeding into broader concerns about the banking sector and against this backdrop, the real economies are struggling pretty badly.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, surpassed the Jan. 13 high of 81.784 last week and reached as high as 82.221 yesterday, the most since September 2010. It was at 82.092 today.
The gauge “maintains the overall bullish bias and risk for additional upside,” Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co., wrote in a research note yesterday. The index may rise to 82.591, a 61.8 percent retracement from a high in June 2010 to a low in May 2011, according O’Connor.
N.Z. Dollar
New Zealand’s dollar halted a two-day decline amid speculation the currency’s recent depreciation has been too rapid, according to Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third- largest bank by market value. “The markets have been excessively pessimistic,” he said.
New Zealand’s dollar gained 0.4 percent to 75.26 U.S. cents after touching 74.57 yesterday, the lowest since Nov. 28. Its 14-day relative strength index against the U.S. currency was 25, below the 30-level that some traders see as a sign that an asset may be about to reverse direction.
Demand for the so-called kiwi was limited after a report from HSBC Holdings Plc and Markit Economics today showed a purchasing managers’ index for China’s manufacturing was at 48.7 in May, compared with a final figure of 49.3 last month. If confirmed on June 1, it would mark the seventh-straight month below the 50 level that separates contraction from expansion. China is New Zealand’s second-largest export destination.
To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net
