Euro Falls From Six-Week High Versus Dollar on Outlook for ECB
By Keith Jenkins and Anchalee Worrachate
July 5 (Bloomberg) -- The euro declined from near its strongest level in six weeks against the dollar on speculation the region’s central bank will keep interest rates at a record low as efforts to trim national budget deficits damp growth.
The euro weakened against 13 of its 16 most actively traded peers. The European Central Bank will leave rates unchanged at 1 percent when policy makers meet on July 8, according to all 55 economists in a Bloomberg survey. ECB President Jean-Claude Trichet yesterday pressed governments to trim deficits to improve consumer and investor confidence.
“The euro-zone economy isn’t strong enough to warrant an interest-rate hike,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “Near-term gains for the euro against the dollar are unlikely.”
The euro fell 0.3 percent to $1.2527 as of 4 p.m. in London from $1.2566 on July 2, when it reached $1.2612, the highest level since May 21. The yen traded little changed at 87.74 per dollar, after climbing to 86.97 on July 1, the strongest since Dec. 2. The Japanese currency was at 109.81 per euro, from 110.27 in New York.
The euro may struggle to extend last week’s gains, according to RBC Capital Markets, even after banks asked for fewer-than-expected loans from the ECB last week and prompted investors to end bets the currency would fall. The currency has lost 8.1 percent against its global peers this year, making it the worst performer among the 10 currencies in the basket, according to Bloomberg Correlation-Weighted Currency Indices.
‘Harder Fought’ Gains
“We remain bearish,” Sue Trinh, a senior foreign-exchange strategist at RBC in Hong Kong, wrote today in a report. The ECB’s tenders last week “morphed into wholesale short covering,” she said. “With much of this bottling behind us and positioning better balanced, we expect further gains will be harder-fought.”
The single currency stayed lower against the dollar after a report showed growth in Europe’s services and manufacturing industries slowed for a second month in June, adding to signs the recovery is losing momentum.
A composite index based on a survey of euro-area purchasing managers in both industries fell to 56 from 56.4 in May, London- based Markit Economics said today. That’s in line with an initial estimate published on June 23. A reading above 50 indicates expansion.
A separate report showed European retail sales increased less than expected in May. Sales in the 16-nation euro area rose 0.2 percent from April, when they fell 0.9 percent, the European Union’s statistics office in Luxembourg said today. Economists had forecast a gain of 0.3 percent, the median of 19 estimates in a Bloomberg News survey showed.
Yen Bets
“There are lingering worries that austerity measures will harm European growth,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We’re still looking to sell the euro on rallies.”
The yen traded near a seven-month high against the dollar before a report tomorrow that economists said will show U.S. service industries expanded at a slower pace.
Futures traders increased bets for a second week that Japan’s currency will gain, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so- called net longs -- was 27,427 on June 29, compared with net longs of 3,630 a week earlier.
Safe Haven
“The decline in risk appetite over recent weeks is showing little sign of abating,” said Gareth Berry, a currency strategist in Singapore at UBS AG. “The yen will likely continue to benefit as a safe-haven destination.”
The dollar fell to its weakest level in seven months against the yen on July 1 as traders added to bets the Federal Reserve will keep its benchmark rate near zero on signs the economy is slowing.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up about 90 percent of the economy, fell to 55 in June from 55.4 the previous month, according to a Bloomberg News survey. Readings greater than 50 signal expansion. The report is due tomorrow.
Futures on the CME Group Inc. exchange show a 34 percent chance the Fed will hold its benchmark rate between zero and 0.25 percent through its April 2011 meeting, up from 12 percent odds a month earlier.
U.S. markets are shut today for the Independence Day holiday. Trading may be “relatively quiet” due to lower liquidity, Khoon Goh, a senior markets economist at ANZ National Bank Ltd., wrote in a note to clients.
Canadian Dollar
The Canadian dollar declined against the U.S. currency for a second day as traders trimmed bets the nation’s central bank will raise interest rates at its meeting this month amid signs the global economic recovery may be stalling.
The Canadian dollar, known as the loonie, fell 0.4 percent to C$1.0669 per U.S. dollar. It also slid to 82.24 yen from 82.60 yen.
“The market is trading a little more hesitantly, easing back on expectations for the Bank of Canada,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia’s Scotia Capital unit.
Bank of Canada Governor Mark Carney on June 1 became the first Group of Seven central banker to raise interest rates, increasing the target level to 0.5 percent from a record low 0.25 percent. Policy makers next meet on July 20 to set rates, then again in September, October and December.
Economists in June cut forecasts for the benchmark rate to 1.25 percent by year-end, from a forecast in May of 1.5 percent, according to the weighted average of 13 estimates in a Bloomberg survey.
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