BLBG:Euro Erases Losses As Shares Pare Drop Before ECB Meeting
The dollar swung between advances and declines against the euro as investors awaited policy decisions from the Federal Reserve and European Central Bank amid mounting evidence that economies around the world are slowing.
The euro pared its gain versus the yen after Bundesbank President Jens Weidmann said that the ECB shouldn’t exceed its mandate. European policy makers announce their next interest- rate decision tomorrow, the first since President Mario Draghi pledged to do whatever it takes to defend the single currency. The pound slid after a report showed U.K. manufacturing shrank the most in more than three years in July, while the yuan fell as a separate report showed Chinese output slowed.
“We could get some kind of explosive moves in the dollar on the announcement, whatever it is,” said Eimear Daly, a currency analyst at Monex Europe in London. “In euro-dollar, the market has priced in action from Draghi but they may be beginning to doubt how aggressive he’s willing to be.”
The dollar was little changed at $1.2311 per euro at 7:56 a.m. New York time after earlier weakening as much as 0.3 percent and strengthening as much as 0.2 percent. The 17-nation currency was little changed at 96.23 yen, paring a gain of as much as 0.4 percent. The dollar was at 78.17 yen, from 78.12 yen yesterday.
The Fed concludes its two-day meeting today.
ECB Mandate
The ECB’s independence “requires it to respect and not overstep its own mandate,” Weidmann said in an interview with former central bank chief Helmut Schlesinger that was conducted on June 29 and published on the Bundesbank’s website today.
The Fed 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.
While the Fed refrained from introducing a third round of asset purchases known as quantitative easing at its June meeting, Chairman Ben S. Bernanke indicated it’s an option.
Rather than increase asset purchases this week, the Fed is more likely to extend its pledge to hold its main interest rate near zero beyond its current horizon of late 2014. Twenty-six percent of economists expect the central bank to announce a later date, while 88 percent said the bank will refrain from starting new purchases at today’s meeting.
Economy Slowing
“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 Institute for Supply Management’s U.S. factory index rose to 50.2 last month from 49.7 in June, according to the median estimate of 83 economists surveyed by Bloomberg News. Fifty marks the dividing line between expansion and contraction.
Euro-area manufacturing contracted for a 12th month in July, stoking concern the region’s economy will struggle to regain momentum in the third quarter.
Draghi pledged last week to do whatever it takes to preserve the shared European currency. He has a proposal that involves the European Financial Stability Facility 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.
Pound Falls
The pound slid against all of its major peers after a gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 45.4 from a revised 48.4 in June. That’s the lowest in 38 months.
Sterling lost 0.3 percent to $1.5634 and also weakened 0.3 percent versus the euro, to 78.73 pence.
Sweden’s krona surged to the strongest in three months against the dollar after Stockholm-based Swedbank AB (SWEDA) said an index of manufacturing based on responses from about 200 purchasing managers rose to a seasonally adjusted 50.6 in July from 48.4 the previous month. A reading above 50 signals an expansion. It was estimated to drop to 47.7, according to the median estimate of seven economists surveyed by Bloomberg.
Krona Gain
The krona rose as much as 0.9 percent to 6.744 per dollar, the strongest since May 3.
China’s yuan halted a four-day gain as manufacturing data trailed economists’ estimates, adding to concern over the nation’s slowing growth.
The Purchasing Managers’ Index was 50.1 in July, from 50.2 in June, according to an official report today, compared with the 50.5 median estimate of analysts surveyed by Bloomberg.
“The latest PMI tells us China’s economy isn’t doing that great,” said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “The yuan is weaker as the dimmer growth outlook has spurred demand for the dollar.”
The yuan fell 0.09 percent to close at 6.3685 per dollar in Shanghai, according to the China Foreign Exchange Trade System.
To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
