The euro approached the lowest level against the dollar in more than two weeks after German Chancellor Angela Merkel dimmed expectations European leaders will solve the region’s debt crisis when they meet tomorrow.
The 17-nation currency pared its advance versus the yen after Italian borrowing costs increased at a bill sale. Merkel responded to a Spanish plea by saying joint euro-area bonds are the “wrong way” to achieve integration, while Finance Minister Wolfgang Schaeuble called for stronger fiscal discipline. Brazil’s real fell against most of its major counterparts even as the government renewed efforts to stimulate growth.
“We’re not seeing investors take many big positions on the major pairs ahead of the European Union summit,” Omer Esiner, chief market analyst in Washington at currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “When expectations are low, you never want to go into an event like this with a major position.”
The euro declined 0.2 percent to $1.2468 at 5 p.m. New York time, after falling to $1.2442 yesterday, the weakest level since June 8. The euro rose 0.1 percent to 99.40 yen after depreciating as much as 0.2 percent. Japan’s currency weakened 0.3 percent to 79.72 per dollar.
The euro has dropped 3.8 percent against the greenback this year, with the yen depreciating 3.5 percent.
Brazil’s real reversed earlier losses that came after the country’s reduced its development bank’s long-term interest rate to a record 5.5 percent and stepped up government purchases of buses and tractors. Since August, central bank President Alexandre Tombini has reduced the target lending rate by 4 percentage points to a record low 8.5 percent.
The currency increased less than 0.1 percent to 2.0754 per dollar.
The British pound weakened after the number of loans granted to buy homes dropped 5.8 percent last month to 30,238, the least since April 2011, supporting the case for the central bank to resume an expansion of stimulus measures. Bank of England Governor Mervyn King told lawmakers yesterday he voted for more so-called quantitative easing this month because of a deteriorating global economic outlook.
Sterling fell 0.5 percent to $1.5568.
“The market is probably repositioning ahead of the central-bank meetings next week,” Greg Anderson, a currency strategist at Citigroup Inc. in New York, said in a telephone interview, referring to Bank of England and European Central Bank meetings on July 5. “Markets are quietly going in and looking back at trades that were very popular and profitable from earlier in the year, which is short euro and sterling.” A short is a bet an asset will decline in value.
U.S. durable goods orders rose 1.1 percent in May, the first increase in three months, easing concern that growth is faltering in the chief destination for the Latin American country’s exports. The median forecast of 76 economists surveyed by Bloomberg News called for a 0.5 percent gain.
Mexico’s peso, which rose against all of its major counterparts, appreciated 1.5 percent to 13.5627 per dollar, paring its decline this quarter to 5.5 percent.
The peso breached a key initial support level at last week’s high of 13.63, which is just above retracement levels of 13.55 and 13.57, Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co., wrote in a report today. If the peso reaches those levels versus the dollar, it should continue to appreciate to 13.30 to 13.35, according to O’Connor.
Speaking three hours after Spanish Prime Minister Mariano Rajoy made a plea for a two-day summit of European leaders in Brussels to use all available tools to help Spain service its debt, Merkel said euro bonds, euro bills and debt redemption funds are unconstitutional in Germany and economically “wrong and counterproductive.”
Schaeuble said Germany’s “unnaturally” low bond yields are a sign of market concern rather than German strength. “It’s more an expression of anxiety than stability,” Schaeuble told reporters today in Berlin. The minister said he doesn’t want such low borrowing costs to continue.
Trading patterns suggest a flattening of the yield curve for Spanish sovereign debt to levels last seen in November would push the euro to less than $1.2288, Tom Fitzpatrick, chief technical analyst at Citigroup in New York, wrote today in a note to clients.
Italy sold 9 billion euros ($11 billion) of 185-day bills at an average yield of 2.957 percent, up from 2.104 percent on May 29. The nation is scheduled to sell as much as 5.5 billion euros of five- and 10-year securities tomorrow. The 10-year bond yield fell six basis points today to 6.12 percent.
“There may be a little bit of a fleeting impact” for Italian bonds from the sale, said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The market recognizes that these are difficult conditions to raise funds.”
The euro may find support against the yen at the June 8 low of 98.54, according to data compiled by Bloomberg based on technical indicators. Support refers to an area where buy orders may be clustered.
The yen has climbed 8.6 percent in the past three months, the biggest gain among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was the second-best performer with a 4 percent advance, while the euro lost 3.4 percent, the biggest drop.
The New Zealand dollar was set for the first quarterly decline since September. The nation had a trade deficit of NZ$805 million ($636 million) in the 12 months ended May 31, the most since November 2009, Statistics New Zealand said.
The so-called kiwi rose 0.1 percent to 79.17 U.S. cents after declining as much as 0.4 percent. The currency has fallen 3.4 percent since the end of March.
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