BLBG:Euro Weakens Versus Peers Before Confidence, Jobless Data
The euro fell against most major peers, retreating from near a two-week high against the yen, before a report today that may add to signs the region’s debt crisis is weighing on consumer sentiment.
The 17-nation currency trimmed gains from last week before data tomorrow that may show the euro area’s unemployment rose to a record last month. European Central Bank President Mario Draghi meets U.S. Treasury Secretary Timothy Geithner today as he attempts to win over Bundesbank President Jens Weidmann on measures to ease the region’s debt woes. The ECB can’t resolve the debt crisis alone, Moody’s Investors Service said before ECB officials gather for a policy decision on Aug. 2
“Even if the ECB were to come up with some policy measures, it will take a considerable amount of time for them to take effect,” said Masakazu Sato, a foreign-exchange adviser for Gaitame Online Co. in Tokyo. “Economic data in the meantime will remain very weak and the euro will continue to be sold each time such data comes out.”
The euro dropped 0.2 percent to $1.2294 as of 6:39 a.m. in London, trimming last week’s 1.4 percent rally. The common currency slid 0.4 percent 96.32 yen after touching a two-week high of 97.34 on July 27. The dollar bought 78.35 yen from 78.46 last week.
Today’s report from the European Commission in Brussels will probably confirm its index of household sentiment in the euro area declined to an almost three-year low of minus 21.6 in July, according to economists in a Bloomberg News survey.
The jobless rate in the area probably rose to 11.2 percent in June from an all-time high of 11.1 percent in May, economists in a separate poll predicted before the statistics office releases data tomorrow.
Draghi Plan
Draghi sparked a euro rally last week by pledging to do whatever it takes to preserve the currency, suggesting policy makers may intervene in bond markets.
His proposal involves the European Financial Stability Facility buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long-term loans to banks are also up for discussion, one of the officials said.
While the ECB’s commitment to preserve the euro is necessary, it’s not sufficient by itself to resolve the debt crisis, Moody’s said in its Credit Outlook today.
Worst Performer
The euro is still down 2.9 percent in the past month, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 0.4 percent over the same period, while the yen has strengthened 2.4 percent.
“The euro will continue to struggle,” said Daisaku Ueno, a senior currency and debt strategist at Tokyo-based Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s biggest financial group by market value. “To resolve Europe’s debt crisis, monetary policy will have to bear a lot of the burden.”
Demand for the dollar was limited before the Federal Reserve starts a two-day meeting tomorrow amid speculation the central bank may signal additional stimulus which debases the greenback.
Fed Chairman Ben S. Bernanke said this month that policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.” While they refrained from introducing a third round of asset purchases at their session last month, Bernanke indicated it’s an option.
U.S. Unemployment
The pace of hiring in July probably failed to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years, economists said before data this week.
The median forecast of economists surveyed by Bloomberg is for an increase in payrolls of 100,000 workers when the Labor Department releases its report on Aug. 3. That would follow an 80,000 gain in June and leave the unemployment rate unchanged at 8.2 percent.
“The Fed is likely to continue to indicate that it’s ready to introduce additional monetary easing,” said Mitsubishi UFJ’s Ueno. “Monetary easing from the Fed is positive for stocks, and the dollar is susceptible to being sold on risk-on sentiment.”
The yen held a two-day decline against the dollar as Asian stocks extended a global rally. The MSCI Asia Pacific Index (MXAP) of stocks rose 0.9 percent, following a 1.8 percent gain in the MSCI World Index gained 1.8 percent on July 27.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
