BLBG: Euro Drops, Extending 3-Day Run, on ECB Stimulus Speculation
Dollar climbs as Chinese data fueled bets Fed will raise rates
Markets anticipate tone of ECB President Dragi on Oct. 22
The euro fell for a third day against the dollar, in its longest stretch of losses in almost three weeks, amid speculation that a report showing China’s economy expanded quicker than economists forecast will make it easier for the Federal Reserve to raise interest rates in 2015.
With economists saying the European Central Bank President Mario Draghi may consider adding to monetary stimulus, the single currency weakened against 12 of its 16 major peers. The euro slid even after ECB official Ewald Nowotny signaled officials, who next decide on policy Oct. 22, won’t expand quantitative easing anytime soon. A report on Monday showed construction output in the euro area contracted in August. The Bloomberg dollar index rose a third day.
Markets are “probably waiting to see what the tone of Draghi’s statement and press briefing is on Thursday, whether he actively encourages talk of additional easing to try and encourage a slightly cheaper euro,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We are in a bit of an early-week holding pattern and waiting for some definitive direction now that the China data is out of the way and it was not a disaster.”
The euro weakened 0.2 percent to $1.1326 as of 7:56 a.m. New York time, extending its drop since Oct. 14 to 1.4 percent. Europe’s 19-nation currency slid 0.2 percent to 135.25 yen. The dollar was little changed at 119.43 yen.
ECB officials are likely to say by the end of the year that they have no choice but to add stimulus, and may even reach that conclusion as soon as Thursday, according to economists in a Bloomberg survey. A report last week showed the euro area’s inflation rate unexpectedly turned negative in September for the first time in six months, increasing pressure on the central bank to add to its 1.1 trillion-euro ($1.3 trillion) asset-purchase plan.
When Fed officials opted in September to leave their benchmark interest rate near zero, where it’s been since 2008, they cited risks posed to U.S. growth and inflation by China’s economic slowdown. China’s gross domestic product rose 6.9 percent in the three months through September from a year earlier, the National Bureau of Statistics said Monday. That beat economists’ estimates for 6.8 percent.
