Euro Weakens Versus Yen, Dollar as Unemployment Rises

The euro fell, reversing its biggest gain versus the yen in more than 15 months, as a report showed unemployment in the 17 countries sharing the currency climbed to a record in May.
The common currency weakened against all except one of its 16 most-traded peers after jumping the most against the dollar in eight months on June 29 as regional leaders eased terms on loans to Spanish banks. The European Central Bank will probably lower the key interest rate a quarter-percentage point on July 5, a Bloomberg News survey showed. Mexico’s peso traded near its highest in a month after a presidential election.

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Japanese yen and U.S. dollar notes are arranged for a photograph in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

 

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July 2 (Bloomberg) -- Kathleen Brooks, research director at Forex.com, a unit of online currency trading company Gain Capital Holdings Inc., talks about foreign-exchange markets. She speaks with Guy Johnson on Bloomberg Television's "The Pulse." (Source: Bloomberg)

 

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July 2 (Bloomberg) -- Derek Halpenny, European head of global currency-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd., talks about European Central Bank interest rates and the outlook for the euro and dollar. He speaks with Linzie Janis on Bloomberg Television's "On the Move." (Source: Bloomberg)

“The data backdrop in Europe remains relatively challenging,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said in a telephone interview. “The unemployment number puts some pressure on the ECB and their response in terms of monetary- policy easing against the backdrop of a weak economic environment.”
The euro dropped 0.5 percent to 100.52 yen at 9:50 a.m. New York time after rising 2.2 percent on June 29, the steepest advance on a closing basis since March 2011. It fell 0.5 percent to $1.2599, after jumping 1.8 percent at the end of last week, the most since Oct. 27. The greenback was little changed at 79.78 yen.
The jobless rate in the euro area rose to 11.1 percent in May from 11 percent in April, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995.

Mexican Election

Enrique Pena Nieto, a member of the Institutional Revolutionary Party, claimed victory in Mexico’s election on a pledge to boost economic growth and private investment. The party ruled the nation for more than 70 years until 2000. The peso fluctuated, trading little changed at 13.3615 per dollar after gaining 0.8 percent and falling 0.2 percent. It touched 13.2505, the strongest level since May 8.
Brazil’s real rose 0.8 percent to 1.9941 per dollar as yields on the country’s interest-rate futures contracts fell after economists covering the world’s sixth-largest economy cut their 2012 growth forecasts for an eighth consecutive week.
Australia’s dollar touched an almost two-month high on bets the central bank will leave interest rates on hold tomorrow.
The euro fell versus all of its major peers except the Danish krone. The ECB will lower its main refinancing rate to 0.75 percent at its meeting this week, according to a Bloomberg survey.
“We can’t buy the euro yet,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “The outlook for Europe’s economy is still bleak, and it still remains to be seen what economic measures will be undertaken there.”

Finn Opposition

The euro stayed weaker against the dollar after currency- bloc member Finland said it opposed granting the permanent European Stability Mechanism the ability to purchase bonds on the secondary market, a measure discussed at last week’s summit.
Officials “didn’t reach consensus on the issue,” according to a statement on the Helsinki-based government’s website today. “Finland was among the Members States to oppose bond buying from the secondary market.”
The euro jumped at the end of last week after euro-area leaders dropped the requirement that governments get preferred creditor status on crisis loans to Spain’s blighted banks. Lenders can also be recapitalized directly with European bailout funds rather than being channeled through governments, European Union President Herman Van Rompuy said after the two-day summit that ended June 29.

‘Bearish Case’

“While Friday’s developments have bought some time for the euro, the bearish case for the currency remains very much intact,” Gareth Berry, a foreign-exchange strategist at UBS AG in Singapore, wrote in a note today. UBS has reiterated its three-month target of $1.20 for the euro, Berry wrote.
Japan’s largest manufacturers expect the yen to trade at an average of 78.93 per dollar in the second half of this fiscal year, the Bank of Japan (8301)’s quarterly Tankan report showed today. They forecast 78.24 in a March survey.
Manufacturer sentiment rose to minus 1 in June from negative 4 in March, according to the report. The BOJ is scheduled to hold a two-day policy meeting starting July 11.

‘Pressure Off’

“On the face of it, the data should take some pressure off the BOJ to ease policy next week,” Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada, wrote in a research note today about the Tankan.
The Reserve Bank of Australia will keep the overnight cash- rate target at 3.5 percent at tomorrow’s policy meeting, according to all 28 economists in a Bloomberg survey.
The Aussie gained 0.2 percent to $1.0257 and reached $1.0278, the strongest since May 4.
New Zealand’s dollar may rise to the highest in more than two months as its short-term momentum has a “bullish” bias, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a research note yesterday, referring to forecasts the currency will continue to appreciate.
The currency, nicknamed the kiwi, faces an “important” test at the level of 80.60 U.S. cents to 80.90, which sits on a downtrend line from the Feb. 29 high, the analyst wrote. Rising above that may take the kiwi toward April highs, O’Connor wrote.

More Pain

The South Pacific nation’s currency jumped as much as 2 percent on June 29 before trading 0.3 percent higher today at 80.38 U.S. cents. It touched 80.51 cents, the highest level since May 3.
Derivatives traders see at least a year of pain for the euro even after the currency surged the most in eight months following the approval by European Union leaders of measures aimed at making it easier for Spain and Italy to obtain aid.
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