Bloomberg News

Euro Stays Lower Before German Factory Data, ECB Meeting

July 04, 2012

Euro Stays Lower Before German Factory Data, ECB Policy Meeting

Factory orders in Germany, the euro zone’s biggest economy, probably declined 6 percent in May from a year ago, according to the median estimate of economists in a Bloomberg survey before today’s figure. They fell 3.8 percent in April. Photographer: Guenter Schiffmann/Bloomberg

The euro remained lower against most of its 16 major peers before German data forecast to show factory orders dropped, adding to signs Europe’s debt crisis curbed demand from the region.

The European Central Bank will probably reduce borrowing costs at a policy meeting today to stimulate the euro-area’s flagging economy, according to a Bloomberg News poll. The pound maintained a three-day slide on speculation the Bank of England will extend its so-called quantitative easing program today.

“The euro is under pressure and will stay under pressure,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk management company. “Germany is a huge market and if that market does slow down, it can only undermine global growth and confidence going forward.”

The euro traded at 100.11 yen as of 9:22 a.m. in Tokyo after falling 0.5 percent to 100.07 yesterday. It was little changed at $1.2528 following a 0.6 percent decline. The dollar bought 79.91 yen from 79.88. The pound was at $1.5591 after retreating 0.8 percent in the past three days to $1.5589.

U.S. financial markets were shut yesterday for the Independence Day holiday.

Factory orders in Germany, the euro zone’s biggest economy, probably declined 6 percent in May from a year ago, according to the median estimate of economists in a Bloomberg survey before today’s figure. They fell 3.8 percent in April.

Spain’s Debt

Spain is scheduled to auction 3-, 4- and 10-year bonds today. The nation’s benchmark 10-year yield jumped 16 basis points yesterday, the most since June 26, to 6.41 percent. That compared with a euro-era high of 7.29 percent reached June 18.

The country last month sought loans of as much as 100 billion euros ($125 billion) from the European Financial Stability Facility to recapitalize its banks battered by the collapse of the property boom in 2008.

“The Spanish auction will be taken up internally from the banks,” said Rochford’s Mumford. “It’s not a sustainable situation. It’s just taking up more debt financed by insolvent banks.”

The ECB is likely to cut its main refinancing rate by a quarter-percentage point from a record low of 1 percent, a separate Bloomberg poll of economists shows.

Options traders have cut bearish bets on the euro. The one- month risk-reversal rate showed a 0.94 percentage point premium yesterday in favor of euro puts relative to calls, the least since April 3. The decline in the premium signals a relative decrease in the demand for options that profit if the euro falls against the dollar. Calls grant the right to buy the currency.

Reports from Markit Economics showed this week that U.K. manufacturing and construction shrank in June with growth of services activity slowing, adding to the case for the BOE to increase stimulus. The central bank will probably raise its target for bond purchases by 50 billion pounds ($78 billion) to 375 billion pounds, according to 30 of 41 economists in a Bloomberg survey.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

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


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