BLBG:Euro Falls Before Industries Data, Spanish Debt Sales
The euro snapped a gain from yesterday ahead of a Spanish bond sale tomorrow and before a meeting of the European Central Bank, at which economists project policy makers will cut interest rates.
The 17-nation currency failed to extend an advance from yesterday versus the yen before data forecast to confirm European services and manufacturing industries shrank. The dollar touched a two-month low versus its New Zealand counterpart on speculation a U.S. report tomorrow will show job growth slowed. The International Monetary Fund said additional monetary easing may be needed in the world’s largest economy.
“The risk is to the downside on the euro,” said Thomas Harr, the Singapore-based head of Asian foreign-exchange strategy at Standard Chartered Plc. “The European situation remains extremely challenging and it’s a very deep recession that we’re facing in Europe.”
The euro declined 0.2 percent to $1.2589 as of 2 p.m. in Tokyo after rising 0.3 percent in New York yesterday. It weakened 0.2 percent to 100.41 yen following a 0.6 percent advance on July 3. Japan’s currency was little changed at 79.76 per dollar. The greenback slid to 80.65 U.S. cents per New Zealand dollar, the lowest since May 3, before trading at 80.50, down 0.2 percent from yesterday.
London-based Markit Economics is likely to say today that a final reading on its euro-area composite index was unchanged at 46 last month from May, according to the median estimate in a Bloomberg News survey of economists. That’s the lowest since June 2009 and below the 50 level that signals expansion of services and manufacturing output.
‘Downward Trend’
The ECB will probably lower its main refinancing rate by a quarter-percentage point to 0.75 percent tomorrow, the median economist estimate in a Bloomberg survey showed.
“The euro is in a downward trend,” said Kikuko Takeda, a senior currency economist in London at the Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “Given the euro region’s economy is bad, I think the chances are high that the ECB will cut interest rates this week.”
Spain is scheduled to auction three-, four- and 10-year debt tomorrow. The nation’s benchmark 10-year bond yielded 6.25 percent yesterday, compared with a euro-era high of 7.29 percent reached June 18.
In the U.S., companies probably added 100,000 jobs in June, the smallest gain since August, a Bloomberg poll showed before ADP Employer Services releases the figure tomorrow.
The data precede a government report due July 6 that may show employers increased payrolls by 90,000 workers last month, according to economists. It would be a third month that employment grew by less than 100,000 and compares with a 69,000 gain in May, the lowest in a year.
Quantitative Easing
A slowdown in U.S. employment would increase expectations that the Federal Reserve will add to stimulus measures, Brown Brothers Harriman & Co.’s strategists led by Marc Chandler wrote in a note yesterday.
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing, or QE, from 2008 through 2011 to stimulate growth through lower borrowing costs. Last month it expanded the program known as Operation Twist that replaces short-term Treasuries in its portfolio with longer-term debt.
“The prospects of a weak employment report will surely spur speculation of Fed QE3 and may help support foreign currencies against the dollar,” Chandler wrote.
The U.S. economy will grow about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis, the IMF said, lowering its previous projection of 2.4 percent.
“Further easing” by the Fed might be needed “if the situation was to deteriorate,” IMF Managing Director Christine Lagarde told reporters in Washington yesterday.
Falling Volatility
The implied volatility of three-month options for Group of Seven currencies declined to 9.39 percent, the lowest since May 8, the JPMorgan G7 Volatility Index showed. It touched 8.84 percent on April 30, the least since November 2007.
Australia’s dollar may climb above 83 yen for the first time since May, according to the Bank of Tokyo Mitsubishi UFJ.
The so-called Aussie’s five-day moving average against the yen rose above its 200-day moving day average this week, forming a “golden cross,” a bullish signal, according to Teppei Ino, an analyst in Tokyo at Mitsubishi UFJ. Should the currency climb above its 90-day average, it may extend gains to 83.23 yen, the 61.8 percent retracement from its March 19 high to its June 1 low on the Fibonacci chart, he said.
Australia’s currency traded at 82.11 yen after rising 0.7 percent to 82.05 yesterday. It gained 0.1 percent to $1.0293.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
