Bloomberg News

Euro Declines Before German Factory-Orders Data; Franc Advances

September 06, 2011

Sept. 6 (Bloomberg) -- The euro fell for a fifth day against the Swiss franc before a report forecast to show German factory orders declined in July, adding to concern that the region’s debt crisis will curtail the economic recovery.

The 17-nation euro weakened to the lowest level since March versus the yen before Finland’s Finance Minister meets today in Berlin with her German and Dutch counterparts to discuss a Finnish demand for collateral from Greece. The franc strengthened against all of its 16 most-traded peers as Asian shares fell after European stocks slumped and before data that economists said will show U.S. service-sector growth slowed, boosting demand for the Swiss currency as a haven.

“The euro is being sold because of concern about Europe’s economic slowdown and its debt crisis,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest listed bank. “Stock drops boost risk aversion, triggering buying of haven currencies such as the Swiss franc, yen and dollar.”

The euro weakened 0.6 percent to 1.1027 Swiss francs as of 6:45 a.m. in London from 1.1097 yesterday. The common currency fell to as low as $1.4039, the least since July 18, before trading at $1.4050 from $1.4098. It slid to 107.84 yen, the weakest since March 17 and was at 107.90 yen from 108.40 yen. The U.S. currency fetched 76.81 yen from 76.89 yen, and dropped 0.3 percent to 78.45 Swiss centimes.

The MSCI Asia Pacific Index of regional shares fell 1.6 percent. The MSCI World Index sank 1.9 percent yesterday, while Stoxx Europe 600 Index lost 4.1 percent.

German Orders

German orders, adjusted for seasonal swings and inflation, dropped 1.5 percent from June, when they increased 1.8 percent, according to the median estimate of economists surveyed by Bloomberg News before the release of the data today.

Another report today may show gross domestic product in the euro area rose 0.2 percent from the first quarter, when it increased 0.8 percent, in line with an Aug. 16 estimate. That would be the slowest pace since the April-June period in 2009.

The euro dropped to a seven-week low versus the greenback on heightening speculation the European Central Bank will halt interest-rate increases amid signs of an economic slowdown.

While all the 57 economists surveyed by Bloomberg expect the central bank to leave its benchmark interest rate unchanged at 1.5 percent at its policy meeting on Sept. 8, traders bet it will cut rates by 32 basis points over the next 12 months, compared with a 14-basis-point-decrease indicated on Sept. 1, according to a Credit Suisse Group AG index based on swaps.

Rate-Cut Speculation

ECB President Jean-Claude Trichet signaled last week the bank may revise its assessment that there is a risk of inflation accelerating.

“It’s inevitable for the ECB to change their stance on inflation,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “If they don’t immediately lower borrowing costs, they may at least signal interest-rate cuts. The euro will trade lower heading into the ECB meeting.”

Finance chiefs from Finland, Germany and the Netherlands are set to gather as the Nordic nation is struggling to piece together a deal that satisfies Finnish voter demands for extra assurances their bailout contributions will be repaid.

Finland will find a Greek collateral model that respects the priority creditor status of the International Monetary Fund and honors existing bondholder claims, Prime Minister Jyrki Katainen said yesterday. The deadlock over AAA rated Finland’s insistence that it get collateral for new Greek loans threatens to delay rescue measures in the euro region, where efforts to contain the debt crisis are unraveling on multiple fronts.

Slowing Services Sector

The Institute for Supply Management’s non-manufacturing index for the U.S. fell to 51 last month, the lowest since January 2010, from 52.7 in July, a Bloomberg survey shows. A reading of 50 is the dividing line between expansion and contraction. President Barack Obama is scheduled to outline his plans to spur the economy and job growth in a Sept. 8 address to Congress.

The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, climbed for a sixth day. The gauge gained 0.3 percent to 75.338, after reaching 75.385, the highest since July 19.

“The safe-haven bid for the U.S. dollar is likely to keep the currency well supported, especially given the deterioration in the picture on the other side of the pond,” Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole CIB, wrote in a note to clients today.

The Australian dollar fell to its lowest in more than a week after a government report showed that net exports detracted 0.5 percentage point from gross domestic product growth in the second quarter.

Australia’s dollar slid to $1.0511 from $1.0551 yesterday and touched $1.0496, the least since Aug. 26.

The so-called Aussie held losses after the Reserve Bank of Australia kept the benchmark rate unchanged at 4.75 percent today.

--With assistance from Kazumi Miura in Tokyo. Editors: Garfield Reynolds, Nate Hosoda

To contact the reporters for this story: Monami Yui in Tokyo at myui1@bloomberg.net. Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.


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