BLBG:Euro Erases Losses As Shares Pare Drop Before ECB Meeting
The euro erased losses as Asian shares pared declines and amid prospects central banks will take further steps to support growth.
The 17-nation currency rose against the yen after Italian Prime Minister Mario Monti was quoted as saying the country may want its sovereign bonds to be purchased by the region’s rescue funds and the European Central Bank. The greenback touched a two-month low against the Japanese currency before the Federal Reserve concludes a two-day meeting today amid speculation the U.S. central bank will signal additional monetary easing.
“The report that Italy may ask for aid and bond purchases became a trigger for stop-loss euro buying,” said Takako Masai, general manager of the markets sub-group Shinsei Bank Ltd. (8303) “The euro may struggle to advance above $1.2360 ahead of the ECB decision tomorrow.”
The euro added 0.1 percent to $1.2314 as of 7:24 a.m. in London after earlier falling as much as 0.2 percent. The shared currency rose 0.1 percent to 96.23 yen from 96.12 yesterday. It earlier dropped as much as 0.4 percent. The dollar touched 77.91 yen, the weakest since June 1, before trading at 78.15.
The MSCI Asia Pacific Index (MXAP) of regional shares was down 0.4 percent after declining as much as 0.8 percent. Shares fell and the yen gained earlier in the Asia trading day as data from China and Australia pointed to a slowdown in manufacturing.
“We’re thinking of a possible intervention in various combinations involving the EFSF, the ESM and the ECB,” Italian Prime Minister Monti said, referring to the temporary European Financial Stability Facility and the permanent European Stability Mechanism, according to Finnish newspaper Helsingin Sanomat.
Draghi Pledge
Monti and French President Francois Hollande said yesterday the two countries are “determined” to do everything to protect the integrity of euro zone.
ECB President Mario Draghi pledged last week to do whatever it takes to preserve the currency. He has a proposal that involves the EFSF buying government debt on the primary market, buttressed by ECB purchases on the secondary market to ensure lenders transmit its record-low interest rates, two central bank officials said on July 27 on condition of anonymity. Further ECB interest-rate cuts and long-term loans to banks are also up for discussion, one of the officials said.
Spanish Economy Minister Luis de Guindos is pushing for additional budget cuts after his German counterpart, Wolfgang Schaeuble, signaled to him that such a move would be rewarded by bond market assistance, according to two people in Madrid familiar with his thinking. The ECB’s Draghi also backs de Guindos’s push, said one of the people.
Yields on Spanish government 10-year bonds rose to 6.75 percent yesterday toward an euro-era record of 7.75 percent reached on July 25.
Fed Easing
Demand for the greenback was limited before a private payrolls report today forecast to show the pace of hiring in the U.S. slowed, supporting bets the Fed will signal additional stimulus which would debase the currency.
Companies probably added 120,000 jobs last month, down from 176,000 in June, according to the median estimate of economists surveyed by Bloomberg before ADP Employer Services releases its data today. The Labor Department is scheduled to release its monthly jobs report on Aug. 3, with the unemployment rate predicted to remain unchanged at 8.2 percent, according to a separate poll.
The U.S. central bank bought $2.3 trillion of securities in two rounds of asset purchases from 2008 to 2011 in a bid to spur growth, and it has said its benchmark interest rate will stay at “exceptionally low levels” at least through late 2014.
‘Clearly Slowing’
While the Fed refrained from introducing a third round of asset purchases known as quantitative easing at its June meeting, Fed Chairman Ben S. Bernanke indicated it’s an option. The central bank bought $2.3 trillion of securities in two rounds from 2008 to 2011 to spur growth, and it has said its benchmark interest rate will stay at “exceptionally low levels” at least through late 2014.
“I think the Fed will ease as growth in the U.S. economy is clearly slowing,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The Fed most likely will lengthen its pledge to keep interest rates low. That could be a catalyst for the dollar to be sold.”
The yen gained earlier against all its major counterparts as data pointed to a global slowdown in manufacturing.
Manufacturing Data
China’s Purchasing Managers’ Index dipped to 50.1 in July from 50.2 in June, the National Bureau of Statistics and the China Federation of Logistics and Purchasing said today. Economists in a Bloomberg News survey predicted a reading of 50.5, while 50 is the dividing line between growth and contraction. That followed figures from Australia that showed manufacturing declined to a three-year low last month.
London-based Markit Economics is expected to confirm today that a gauge of euro-region manufacturing declined to 44.1 in July, according to a Bloomberg survey of economists. That would be in line with an earlier reading and the lowest since June 2009.
The yen tends to appreciate during periods of financial turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. It has surged 6 percent in the past three months, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has lost 4.9 percent while the dollar added 3.1 percent.
-- With reporting by Hiroko Komiya in Tokyo, Masaki Kondo in Singapore. Editors: Rocky Swift, Stuart Biggs
To contact the reporter on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
