BLBG:Euro Falls Versus Most Major Peers Before Confidence Data
The euro weakened as European finance ministers hold a conference call to consider terms for Spain’s bank bailout.
The euro depreciated to a more than three-year low versus the pound before data next week that economists said will show a gauge of consumer confidence was close to a three-year low and manufacturing shrank for a 12th month in the 17-nation bloc. The dollar rose against a majority of its 16 most-traded counterparts as European and Asian stocks fell, boosting demand for the perceived safety of the U.S. currency.
“We are waiting for the memorandum of understanding out of Spain, so really the markets are focused on that,” said Chris Walker, a currency strategist at UBS AG in London, referring to the agreement to bail out Spain’s banks. “It’s all in a context of ongoing growth concerns globally rather than just systemic risk out of euro-zone markets. The dollar grinds higher.”
The euro dropped 0.6 percent to $1.2206 as of 7:38 a.m. New York time, leaving it 0.3 percent lower in the week, a third weekly decline. The shared currency fell 0.6 percent to 95.92 yen. The dollar was little changed at 78.56 yen, declining 0.8 percent against the Japanese currency in the five days. The euro slid 0.3 percent to 77.83 pence, the least since October 2008.
The Stoxx Europe 600 Index dropped 0.6 percent, paring its seventh straight weekly advance, and the MSCI Asia Pacific Index (MXAP) slid 0.7 percent, also trimming a five-day increase.
European Confidence
Euro-area finance ministers are holding a conference call today to sign off on the terms of a 100 billion-euro bank bailout for Spain. The ministers are not expected to tackle other issues, such as Greece’s looming 3.1 billion-euro August bond payment or widening spreads in Italy.
An index of consumer sentiment in the euro region probably fell to minus 20 in July from minus 19.8 a month earlier, economists surveyed by Bloomberg News predict. The European Commission will release the figure on July 23. The index slid to minus 21.3 in December, the lowest level since August 2009.
A gauge for manufacturing in the currency bloc is estimated to be at 45.2 this month, according to a separate survey. That’s below the 50 level that divides expansion from contraction and compares with a reading of 45.1 last month. London-based Markit Economics is scheduled to report the data on July 24.
“There are a number of issues with the European economy,” said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “It’s pretty clearly in quite an acute contraction. The euro is going to remain a weak currency.”
Weekly Decline
Spain sold five-year notes yesterday with an average yield of 6.459 percent, the highest since at least 2005, according to data compiled by Bloomberg.
The pound weakened versus the dollar after a report showed Britain had a bigger budget deficit in June than economists forecast. The deficit, which excludes government support for banks, was 14.4 billion pounds ($23 billion) compared with 13.9 billion pounds a year earlier. Economists surveyed by Bloomberg forecast a deficit of 13.4 billion pounds.
Sterling declined 0.2 percent to $1.5695, paring its weekly advance to 0.8 percent.
The greenback fell against most of its major peers this week amid speculation the Federal Reserve will add to monetary stimulus, weakening the currency.
U.S. Economy
U.S. Commerce Department figures will probably show on July 26 that orders for durable goods increased 0.4 percent in June, less than the 1.3 percent gain in May, according to economist estimates. The report will be followed the next day by data that economists said will show gross domestic product grew at an annualized 1.5 percent in the second quarter, the slowest since June 2011.
Fed Chairman Ben S. Bernanke said on July 17 that policy makers are “looking for ways to address the weakness in the economy should more action be needed.” The central bank bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from 2008 to 2011, seeking to cap borrowing costs and stimulate the economy.
“The dollar is prone to selling,” said Masato Yanagiya, New York-based head of foreign exchange and money trading at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “Markets are leaning toward risk-on sentiment.”
Technical Levels
The Australian dollar climbed 1.8 percent this week to $1.0408, poised for the biggest advance since the five days ended June 8.
The so-called Aussie may extend its “impressive” rally to advance to an almost four-month high, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a research note yesterday.
The currency climbed this week above the 61.8 percent retracement from the Feb. 29 high to the June 1 low. That level represents the currency’s “key resistance,” according to O’Connor. There is a “growing risk” that the currency will rise to the 76.4 percent retracement at $1.0555, the analyst wrote. That would be the highest since March 27. Resistance refers to an area on a chart where traders believe orders to sell an asset may be clustered.
The implied volatility of three-month options on Group of Seven currencies touched 8.32 percent, according to a JPMorgan Chase & Co. measure, the least since November 2007. 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.
Asian Currencies
China’s yuan was headed for its first gain in three weeks after the central bank strengthened the currency’s daily fixing and on speculation Premier Wen Jiabao will implement measures to revive economic growth.
Wen said at least twice this week that the nation’s economy is yet to stabilize and reiterated the need for policy fine- tuning in coming months to spur growth. The People’s Bank of China raised the yuan’s reference rate 0.02 percent to 6.3112 per dollar today, the strongest level since June 21.
The yuan strengthened 0.08 percent this week to 6.3735 per dollar, according to the China Foreign Exchange Trade System.
Malaysia’s ringgit had its best week since January. It advanced 1.1 percent this week to 3.1493 per dollar, the best five-day performance since Jan. 27, according to data compiled by Bloomberg. It was little changed today.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
