The euro dropped from a one-week high against the dollar amid speculation the European Central Bank (EURR002W) will lower its key interest rate when policy makers meet in two days’ time. The common currency fell versus all but two of its 16 major peers as data showed euro-area unemployment climbed to a record and inflation slowed, adding to signs the region is struggling to emerge from recession. The Federal Reserve starts a two-day policy meeting today. The yen rose, paring a seventh monthly decline against the dollar. Norway’s krone dropped as retail sales stalled in March. “The market is really just thrashing around ahead of all of the big central-bank news later in the week,� said Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada in London. “The market seems to be pretty much priced for a cut� in rates, he said. The euro declined 0.2 percent to $1.3073 at 7:07 a.m. New York time after rising to $1.3121, the strongest since April 19. It has advanced 2 percent this month. The common currency slid 0.4 percent to 127.55 yen. The Japanese currency added 0.2 percent to 97.56 per dollar, having weakened 3.5 percent since the end of March. JPMorgan’s Global FX Volatility Index, a measure of currency fluctuations, fell to 8.8 percent, the lowest level since Feb. 1. Inflation Slows The ECB will cut its main refinancing rate by a quarter of a percentage point, according to economists surveyed by Bloomberg News. Consumer prices in the 17-nation bloc increased an annualized 1.2 percent in April after climbing at a 1.7 percent pace a month earlier. The median estimate of 38 analysts in a Bloomberg survey called for a drop to 1.6 percent. The unemployment rate in the region rose to a record 12.1 percent in March from 12 percent a month earlier. The euro has gained 1.5 percent in the past month, the third-best performer after the New Zealand dollar and the pound, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The dollar fell 0.7 percent and yen tumbled 4.5 percent. The yen’s gains today pared a slump of at least 2.8 percent against all its major peers this month as unprecedented stimulus measures announced by the Bank of Japan on April 4 spurred investors to sell the yen. Demand for the Japanese currency was also sapped as the MSCI World Index of stocks rose 2.5 percent this month. Fed Stimulus The U.S. Fed is buying $85 billion of bonds each month in its third round of QE to put downward pressure on borrowing costs. While Chairman Ben S. Bernanke said after the central bank’s previous meeting on March 20 that further labor-market gains were needed to consider reducing monetary easing, minutes showed officials discussed slowing the pace of buying. The Norwegian krone snapped a four-day advance against the dollar after a report by the Oslo-based statistics office showed retail sales excluding motor vehicles and petrol stations were unchanged in March, after rising 0.5 percent in February. Sales fell an annual 4.2 percent. The krone weakened 0.2 percent to 5.8257 per dollar, paring its monthly gain to 0.4 percent. It was little changed against the the euro at 7.6165, headed for its fifth straight monthly decline. New Zealand’s currency slid against most major peers after the statistics bureau said home building approvals fell 9.1 percent in March compared with the median forecast in a Bloomberg survey of economists for an increase of 2 percent. The “unambiguously weaker-than-expected� data spurred selling of the so-called kiwi, said Mike Jones, a foreign- exchange strategist at Bank of New Zealand in Wellington. The New Zealand dollar slid 0.1 percent to 85.62 U.S. cents. It was little changed at NZ$1.2076 per Australian dollar. 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.

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