BLBG:Euro Declines Before ECB Meeting, Retail Sales Report
The euro weakened for second day against the dollar amid speculation measures to be announced by the European Central Bank tomorrow will fail to restore confidence in the region.
The 17-nation currency fell versus 12 of its 16 major counterparts after a euro-area report showed retail sales declined in July, led by Germany. The dollar strengthened as investors sought safer assets. Australia’s currency dropped to a seven-week low after the economy grew less than analysts forecast. The euro reached a two-month high against the dollar last week on optimism ECB President Mario Draghi would announce a bond-buying plan at tomorrow’s meeting.
“There’s a realization that expectations have got a bit ahead of themselves,” said Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “There are concerns about how far Draghi can go in the short term, so there’s a dose of reality being heaped on the optimism of the past few weeks.”
The euro declined 0.3 percent to $1.2526 at 10:38 a.m. London time after rising to $1.2638 on Aug. 31, the strongest since July 2. The shared currency fell 0.3 percent to 98.29 yen. Japan’s currency was little changed at 78.46 per dollar.
The ECB’s mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival, Draghi said this week according to a recording of his comments obtained by Bloomberg News. “All this also has to do very much with the continuing existence of the euro,” he told lawmakers during a closed-door session of the European Parliament on Sept. 3.
ECB Meeting
The ECB will lower its benchmark rate to 0.5 percent from 0.75 percent at tomorrow’s meeting, according to the median estimate in a Bloomberg survey.
Germany’s Constitutional Court is set to rule on the legality of the European Stability Mechanism, the euro region’s permanent bailout fund, on Sept. 12. The ECB may delay giving full details of Draghi’s bond-buying plan until after the ruling, two central bank officials said on Aug. 24.
“Ahead of the German Constitutional Court ruling, I’m not sure if the ECB can deliver all that they want to,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The dollar is finding some support. It’s difficult to see a clear picture ahead of risk events.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, gained 0.2 percent to 81.504.
Euro’s Decline
The euro has dropped 3.5 percent in the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 6.9 percent, and the dollar appreciated 2.3 percent.
Euro-area retail sales fell 0.2 percent in July, the European Union’s statistics office said. A separate report from Markit Economics showed an index based on a survey of purchasing managers in services industries dropped to 47.2 in August, from 47.9 in July. A number below 50 indicates contraction.
Australia’s dollar dropped for a third day as growth in the south Pacific nation slowed more than economists forecast in the second quarter.
Gross domestic product expanded 0.6 percent in the three months through June from the previous quarter, when it grew a revised 1.4 percent, the statistics bureau said. The median estimate of economists in a Bloomberg survey was for growth of 0.7 percent.
“The incoming anecdotal evidence from key resource companies in Australia remains poor,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada. “The outlook for Aussie remains rather poor given the deterioration in the global growth backdrop as well.”
The Australian dollar weakened 0.3 percent to $1.0190 after dropping to $1.0167, the lowest level since July 13. The so- called Aussie slid 0.4 percent to 79.91 yen.
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: Paul Dobson at pdobson2@bloomberg.net
