BLBG:Euro Falls to Three-Week Low Versus Dollar as Recession Deepens
The euro slid to a three-week low against the dollar after a report showed Europe’s recession deepened more than economists forecast last quarter, sapping demand for the region’s assets.
The 17-nation currency dropped for a third day versus the yen as the data followed separate figures showing gross domestic product in Germany and France both shrank. The yen erased a decline after Russia’s finance minister said Group-of-20 nations should take a stronger stance against currency manipulation. New Zealand’s dollar rose to a 17-month high after manufacturing expanded. The euro has still strengthened about 4.7 percent against the dollar in the past three months.
“They’re pretty awful figures” in Europe, said Neil Mellor, a foreign-exchange strategist at Bank of New York Mellon Corp. in London. “It could get a lot worse because the euro has risen a long way since the start of the fourth quarter.”
The euro slumped 0.9 percent to $1.3334 at 6:03 a.m. in New York after falling to $1.3319, the lowest level since Jan. 24. The shared currency declined 0.9 percent to 124.50 yen after dropping 0.6 percent during the previous two days. The yen was little changed at 93.37 per dollar after weakening as much as 0.3 percent.
Gross domestic product in euro area fell 0.6 percent from the previous three months, the European Union’s statistics office said. That’s the worst performance since the first quarter of 2009 and exceeded the 0.4 percent median forecast of economists in a Bloomberg News survey.
The currencies of euro-area neighbors also weakened, with the Hungarian forint, Polish zloty and Swedish krona all sliding at least 0.9 percent versus the dollar.
Negative Rates
The euro also declined after European Central Bank Vice President Vitor Constancio said the ECB is technically ready for negative deposit rates if needed. Governments “should behave in a way that allows” markets to determine foreign-exchange rates, he said at a conference in Brussels.
The ECB’s deposit rate is currently at zero. The central bank normally moves its three interest rates in tandem, so any 25 basis-point benchmark cut may entail the deposit rate falling to minus 0.25 percent, damping the allure of the currency.
The euro has strengthened 6.6 percent in the past six months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 2.3 percent and the yen tumbled 19 percent.
‘Specific’ Language
The yen erased losses after Russia’s Finance Minister Anton Siluanov said the country wanted more “specific” language opposing exchange-rate interference in the communique that will be issued after talks among finance chiefs this week.
“The G-20 countries have always held the position that currency policy should be based on market conditions,” he said an interview today with Bloomberg Television’s Ryan Chilcote. “I think we should take a more specific stance on this.”
The yen dropped earlier after a report showed Japan’s economy unexpectedly contracted in the fourth quarter, boosting Prime Minister Shinzo Abe’s case for more monetary stimulus
The central bank last month doubled its inflation target to 2 percent and pledged open-ended bond buying. Shirakawa and two deputies will step down next month, allowing Abe to pick leaders to implement his plan for expanded monetary easing.
“I certainly think we’ll get above 95 at some point,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada, referring to the dollar-yen rate. “Whether it can really extend much further in the absence of any real policy developments, I’m less confident. If there is a watershed moment it’s probably the appointment and first action of the BOJ officials.”
Kiwi Gains
The so-called kiwi climbed to the strongest since September 2011 after the expansion in manufacturing backed the case for the Reserve Bank of New Zealand to raise interest rates.
The Performance of Manufacturing Index increased to 55.2 in January from 50.4 in December, Business New Zealand and the Bank of New Zealand Ltd. said. A gauge of consumer confidence rose to the highest since June 2010, ANZ Bank New Zealand Ltd. and Roy Morgan Research said in a separate report.
New Zealand’s currency rose 0.2 percent to 84.71 U.S. cents after rising to 85.14 cents, the highest since Sept. 2, 2011.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
