Bloomberg News

Euro Falls a 3rd Day Versus Dollar on Debt-Crisis Concern

May 02, 2012

The euro  dropped against most of its 16 major peers. Photographer: Simon Dawson/Bloomberg

The euro dropped against most of its 16 major peers. Photographer: Simon Dawson/Bloomberg

The euro weakened for a third day against the dollar, the longest losing streak in almost a month, after data showed European manufacturing shrank and unemployment rose in Germany, adding to concern the debt crisis will worsen.

The 17-nation currency fell to a two-week low versus the yen on bets European Central Bank President Mario Draghi may hint at further easing at a meeting tomorrow. The dollar pared gains against the yen after data showed U.S. firms added fewer workers in April than forecast, fueling speculation the Federal Reserve may keep accommodative monetary policy in place longer. Higher-yielding currencies dropped as risk appetite ebbed.

“Those horrible purchasing-manager index data out of Europe, it’s not a good situation,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The only reason why the euro probably didn’t go down further is because the market is looking ahead to the ECB meeting to see how they characterize this whole mess.”

Europe’s shared currency dropped 0.6 percent to $1.3158 at 5 p.m. in New York in its longest stretch of daily losses since April 5. The euro fell 0.5 percent to 105.46 yen and touched 105.13 yen, the lowest since April 16. The dollar was little changed at 80.14 yen after appreciating earlier as much as 0.7 percent.

New Zealand’s dollar and Norway’s krone were among higher- yielding currencies that dropped against the greenback. The kiwi, as the New Zealand currency is nicknamed, slid 0.6 percent to 81.08 U.S. cents, and the krone lost 0.4 percent to 5.7424 to the U.S. dollar. Mexico’s peso fell 0.2 percent to 12.9378.

Stocks declined, with the Standard & Poor’s 500 Index falling 0.9 percent before paring its loss to 0.3 percent.

European Manufacturing

The euro dropped against most of its 16 major peers as London-based Markit Economics said its purchasing-manager index of euro-region manufacturing shrank for a ninth month, falling to a 34-month low of 45.9 in April from 47.7 in March. A reading below 50 shows contraction.

The number of people out of work in Germany increased a seasonally adjusted 19,000 last month to 2.87 million, the Nuremberg-based Federal Labor Agency said. Economists surveyed by Bloomberg forecast a decline of 10,000. Yields on Germany’s two-, five-, 10-, and 30-year bonds dropped to record lows.

At the ECB meeting tomorrow, Draghi may ‘begin to hint that the outlook for the European economy is clearly beginning to deteriorate again,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “Within the next couple of months, the possibility of further rate cuts from the ECB is rising.”

ECB Rate Bets

The central bank will keep its benchmark interest rate at a record low 1 percent tomorrow, according to all 58 economists surveyed by Bloomberg News.

Spain will auction three- and five-year notes tomorrow amid speculation that the euro area’s fourth-largest economy will follow Greece, Ireland and Portugal in seeking a bailout. France and Greece hold elections on May 6.

The shared currency slid 6.9 percent over the past year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 5.9 percent, and the yen appreciated 5.3 percent.

The euro is approaching price levels versus the dollar that indicate a break from a consolidation pattern, setting the stage for further weakness against the greenback, according to Citigroup Inc.

A daily close below $1.2995 per euro will signal a break of a so-called price trend channel, Tom Fitzpatrick, chief technical strategist at Citigroup in New York, wrote in a note today. A breach could send the shared currency to as low as $1.20, he said.

‘Increasingly Bleak’

“We are seeing signs of a break in the euro as things continue to look increasingly bleak,” Fitzpatrick said in an interview. “At the end of the day, nothing in Europe has been fixed and there remains a lot of concern, so money is going to places where investors are ensured to get it back.”

The Dollar Index trimmed gains after a report showed U.S. companies added fewer jobs than forecast. Private employers’ payrolls increased by 119,000 workers, after a revised 201,000 gain in March, according to Roseland, New Jersey-based ADP Employer Services. The median forecast of economists in a Bloomberg News survey was for an advance of 170,000.

‘Warning Light’

“If the ADP is to be believed, it shows that growth in the second quarter is clearly slowing more than the market forecast, and it definitely puts a very big, bright warning light on growth forecasts going forward,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York.

The Labor Department will report May 4 that U.S. nonfarm payrolls added 160,000 jobs in April, up from 120,000 the previous month, another Bloomberg survey showed.

While the Fed refrained at a two-day meeting last week from new actions to boost the economy, Chairman Ben S. Bernanke said it’s “prepared to do more” if necessary. The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to lower borrowing costs. The Dollar Index (DXY) fell 14 percent during that period.

Four U.S. central bankers said they don’t see a need to ease policy further as the economy expands. John Williams, president of the San Francisco Fed, joined his counterparts from Richmond, Philadelphia and Atlanta yesterday in casting doubt on the need for additional purchases of bonds to cap longer-term interest rates.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. rose 0.4 percent today to 79.142 and reached 79.319, the highest level since April 24.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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