The euro fell to a six-week low against the yen as the inflation rate in the currency region matched the lowest since February 2011 in June, adding to concern the area is headed for a recession. The dollar pared gains versus the 17-nation currency after U.S. retail sales unexpectedly fell for a third month. The yen rose against all its most-traded peers as stocks fell. The Swedish krona sank before central-bank minutes due tomorrow of the meeting where officials said risks stemming from the euro crisis are “now casting a shadow over the Swedish economy.� “Investors continue to flee the euro and European assets, especially in the periphery,� said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “That will continue because growth looks weak and policy has been fairly ineffectual.� The euro declined 0.7 percent to 96.33 yen at 9:47 a.m. in New York, after reaching 96.17 yen, the lowest level since June 1. It depreciated 0.2 percent to $1.2228 after falling 0.6 percent earlier. It slid to $1.2163 on July 13, the weakest since June 2010. The yen gained 0.5 percent to 78.76 per dollar. The shared currency, created in 1999, traded at almost its lifetime average exchange rate, currently at $1.2087. It declined 4.1 percent in the past three months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen advanced 6.3 percent, and the dollar gained 3.9 percent. Retail Sales The Dollar Index (DXY) erased gains after a Commerce Department report showed U.S. retail sales dropped 0.5 percent in June. The gauge, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed 83.331. It increased 0.4 percent earlier. The sales decline was worse than the most-pessimistic forecast in a Bloomberg News survey in which the median projection called for a 0.2 percent rise. Purchases last fell for three or more months in July through December 2008. The dollar’s losses were limited as investors sought safety in U.S. Treasuries. U.S. five-year note yields fell to a record 0.5865 percent. Japan’s currency rose versus the greenback as the extra yield investors receive for investing in U.S. five-year debt versus comparable Japanese government bonds fell to the lowest since February, limiting dollar-denominated assets’ appeal. The yield spread was 40 basis points, or 0.40 percentage point. Merkel Stance The rate of inflation in the euro area was at 2.4 percent in June, the same as in May, the European Union’s statistics office in Luxembourg said today. Earlier the euro traded below $1.22 for a third day as German Chancellor Angela Merkel said she hasn’t softened her stance on measures to stem the sovereign debt crisis. German lawmakers are scheduled to debate aid to recapitalize Spanish banks this week. Germany’s Federal Constitutional Court in Karlsruhe will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal treaty on Sept. 12, it said today in a statement. That’s more than two months after it held a hearing on the measures on July 10. The euro may drop to a support level at $1.2151 and then toward the “psychologically important� level of $1.20, Mitul Kotecha, head of global currency strategy at Credit Agricole Corporate & Investment Bank in Hong Kong, wrote in a note to clients. Support is an area where buy orders may be clustered. The $1.2151 level was last seen on June 14, 2010, according to data compiled by Bloomberg. The euro last touched $1.20 on June 10 the same year. Volatility Falls A gauge of currency volatility dropped for a sixth day and reached the lowest level since April. The implied volatility of three-month options on Group of Seven currencies fell to 9.03 percent, according to a JPMorgan Chase & Co. measure, the lowest since April 27. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits. The Canadian dollar reached a record against the euro, gaining 0.5 percent to C$1.2365, before trading little changed at $1.2428. The currency fell 0.2 percent to C$1.0158 versus the U.S. dollar. Swedish Krona The Swedish krona fell for a fourth day against the dollar, slipping 0.4 percent to 7.0582. It lost 0.2 percent to 8.6334 per euro. The Riksbank left its benchmark repo rate at 1.5 percent on July 4. Even with the U.K. in its first double-dip recession since 1975, exports to Europe falling and the Bank of England adding to the supply of sterling by injecting 375 billion pounds of stimulus, the pound rose 3.1 percent over the past six months. That’s the best performance of the basket of 10 developed-nation currencies tracked by Bloomberg. The pound gained 0.3 percent to 78.41 pence per euro today, and touched 78.38 pence, the strongest level since Oct. 31, 2008. Sterling rose 0.2 percent to $1.5608. To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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