Bloomberg News

Euro Trades Near Two-Month Low Versus Dollar Before German Data

September 06, 2011

Sept. 7 (Bloomberg) -- The euro was 0.2 percent from the lowest level in almost two months against the dollar before a German report that may show industrial production grew at the slowest pace in three years.

The 17-nation currency held a six-day slump against the greenback before the European Central Bank announces its decision on policy rates tomorrow. The yen was within 0.1 percent of a one-month low against the dollar as the imposition by Switzerland’s central bank of a ceiling on the franc’s exchange rate spurred speculation Japan will follow the European nation in weakening its currency.

“Sentiment is very poor on the euro,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney, Australia’s second-largest lender. “You’ve also got the possibility that the ECB becomes more dovish on Thursday.”

The euro traded at $1.4006 as of 8:03 a.m. in Tokyo from $1.3998 in New York yesterday when it slid to $1.3972, the lowest since July 13. The yen was at 77.63 per dollar from 77.66 yesterday, when it retreated to 77.73, a level unseen since Aug. 9. The euro was little changed at 108.70 yen.

Industrial production in Germany, Europe’s biggest economy, increased 0.5 percent in July from the previous month, according to the median of economist estimates in a Bloomberg survey before today’s release. While it’s an improvement from a 1.1 percent drop in June, it’s the smallest gain since February 2008.

Rate Outlook

“One of the factors weighing on the euro more so now than a few months ago is the deterioration in the economic outlook,” Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd., wrote in a report today. “A slower German economy has negative implications for euro area debt markets, as well as global growth.”

While all 57 economists surveyed by Bloomberg expect the ECB to leave its benchmark interest rate unchanged at 1.5 percent at its policy meeting tomorrow, traders bet it will cut rates by 30 basis points over the next 12 months, according to a Credit Suisse Group AG index based on swaps.

The yen has fallen 2.5 percent for the past 12 months, the fourth-worst performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.

The Swiss National Bank yesterday said “it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs” and that it’s “aiming for a substantial and sustained weakening of the franc.” Following the announcement, the franc dropped as much as 9.9 percent against the euro, a record decline.

The Bank of Japan will conclude a two-day policy meeting today.

“Japan would prefer for now to be tactical, to retain the element of surprise, leave the markets guessing as to when they’re likely to intervene again,” said Westpac’s Callow. “I think their next step is for another round of intervention when they think the conditions are ripe for success.”

--Editors: Jonathan Annells, Benjamin Purvis

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

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


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