The euro weakened for a second day against the dollar and yen after reports showed services and manufacturing in the region shrank in October more than economists predicted as the debt crisis stifled growth.
The 17-nation currency fell versus all except two of its 16 major counterparts as the Ifo institute in Munich said German business confidence dropped to the lowest level in more than two years. The Dollar Index (DXY) climbed to the highest in almost two weeks before Federal Reserve officials end a two-day policy meeting. Sweden’s krona slid for a fourth day against the dollar after a report showed consumer confidence worsened.
“We’ve had some bad news and the euro has gone down,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Given the extent of the poor news that’s been around, I think it’s still amazing that the euro has been so resilient.”
The euro dropped 0.4 percent to $1.2940 at 7:30 a.m. New York time after falling 0.6 percent yesterday. The shared currency slid 0.4 percent to 103.25 yen. It earlier declined to 102.99 yen, the weakest since Oct. 17. The yen rose 0.1 percent to 79.79 per dollar.
Europe’s common currency may weaken to $1.28 in the next month before recovering to about $1.30 over three months as investors bet the European Central Bank will activate its bond- buying program “as soon as things sour enough,” Rabobank’s Foley said.
Manufacturing Contracts
A composite index based on a survey of purchasing managers in manufacturing and services industries in the euro area fell to 45.8 from 46.1 in September, London-based Markit Economics said. Economists surveyed by Bloomberg forecast an increase to 46.5. A number below 50 indicates contraction. The Ifo institute said its German business climate index dropped to 100 this month, the lowest since February 2010, from 101.4 in September.The euro has weakened 4.8 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. It has gained 3.2 percent since July 26 when ECB President Mario Draghi pledged to do whatever it takes to safeguard the monetary union.
Spanish Prime Minister Mariano Rajoy said yesterday there was a case for easing budget-deficit targets set by the European Union as the recession undermines tax revenue. Rajoy didn’t mention seeking aid even as he praised the ECB’s offer to help lower troubled countries’ borrowing costs. Spain’s 10-year bond yields climbed to as high as 5.69 percent today from 5.37 percent at the end of last week.
‘More Downside’
“We would see a bit more downside in the near term for the euro,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “Economic numbers are hurting the euro and the lack of a Spanish bailout is also hurting.”Fed Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee will conclude a two-day meeting in Washington today and release a statement on policy, including their current plan to buy $40 billion in mortgage-backed securities each month for an indefinite period as they seek to nurse the economic recovery.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, rose 0.1 percent to 80.026 after climbing to 80.151, the highest since Oct. 11.
Krona Falls
The krona dropped after the National Institute of Economic Research said Swedish consumer confidence index declined to minus 2.9 in October from 2 the previous month. The median prediction of economists surveyed by Bloomberg News was 1.7.The krona slipped 0.6 percent to 6.6898 per dollar and fell 0.3 percent to 8.6581 per euro.
The Australian dollar advanced after an industry report signaled a slowdown in Chinese manufacturing was abating, and as a local data showed consumer prices rose more than economists forecast last quarter.
HSBC Holdings Plc (HSBA) and Markit Economics said a preliminary reading of a purchasing managers’ index for China climbed to 49.1 in October from 47.9 last month. China is Australia’s biggest trading partner.
“What is good news for China is good news for Australia and the evidence of a turnaround in China coupled with today’s inflation data certainly throws some doubt” on expectations of lower interest rates, Derek Halpenny, European head of global- markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a client note. The data “offer the Australian dollar some near-term support,” he said.
The so-called Aussie appreciated 0.6 percent to $1.0326 and gained 0.5 percent to 82.376 yen.
Source: Bloomberg
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