Bloomberg News

Euro Rises From Two-Year Low as Finance Ministers Meet

July 09, 2012

Euro Touches 2-Year Low

The euro earlier slid to as low as $1.2251, the weakest since July 2010. Photographer: Chris Ratcliffe/Bloomberg

The euro advanced from a two-year low versus the dollar as finance ministers from the 17-nation currency bloc met to discuss measures to ease its debt crisis.

The shared currency rose from the weakest in more than a month against the yen as European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut if the economic outlook warrants it. The dollar and yen gained earlier as machinery orders in Japan plunged and inflation in China declined, adding to concern economic growth is faltering and fueling demand for refuge.

“What we’ve seen today is a bit of short covering,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in a telephone interview. “Euro-dollar is going to continue to slip lower with monetary policy in the euro zone so loose.” Short covering is when investors end bets an asset will decline.

The euro rose for the first time in four days, gaining 0.2 percent to $1.2313 at 5 p.m. New York time, after falling earlier to $1.2251, the weakest level since July 2010. The 17- nation currency advanced 0.1 percent to 97.95 yen after earlier touching 97.43 yen, the lowest since June 5. Japan’s currency strengthened 0.1 percent to 79.56 per dollar.

Brazil’s real was the worst performer against the greenback after South Korea’s won. The real slid 0.2 percent to 2.0324 per dollar. Norway’s krone rose versus the euro and dollar, appreciating 0.4 percent to 7.4866 to the shared currency and gaining 0.6 percent to 6.0804 per dollar.

Aussie Weakens

Australia’s dollar fell after the official Xinhua News Agency reported yesterday Chinese Premier Wen said the government will intensify fine-tuning of policies in response to downside risks to economic growth. The comments came after the South Pacific nation’s biggest trading partner announced the second interest-rate cut in a month.

The Aussie slid as much as 0.6 percent to $1.0155 before trading at $1.0208, down less than 0.1 percent. It lost 0.2 percent to 81.21 yen and fell 0.3 percent to A$1.2062 per euro.

Consumer prices in China rose 2.2 percent in June from a year earlier, according to a report released today. It was the slowest pace in 29 months and compared with the median forecast in a Bloomberg poll for a 2.3 percent inflation rate.

Machinery orders in Japan, an indicator of capital spending, slumped 14.8 percent in May from April, the nation’s Cabinet Office said in a report.

Three Months

Stocks fell, with the Standard & Poor’s 500 Index (SPX) declining 0.2 percent and the MSCI World Index (MXWO) dropping 0.4 percent.

The 17-nation currency erased losses as the European Commission said future recapitalizations of banks by the European Stability Mechanism will have “no need for a sovereign guarantee.” Details of how the system will work remain to be negotiated, commission spokesman Simon O’Connor told reporters in Brussels today.

European finance ministers met to discuss crisis measures adopted by heads of government at a summit last month.

European Union leaders pledged June 29 to enable the region’s permanent bailout fund to make capital injections directly to distressed lenders rather than funneling aid through governments, once a single bank-supervision system is created.

“In the near-term, we think the euro could come back a little bit as we get some certainty about this bank program in Europe, and also increasing prospects of QE3 here in the U.S.,” said Robert Sinche, global head of currency strategy at Royal Bank of Scotland Group Plc’s RBS Securities. He was referring to speculation the Federal Reserve may begin a third round of large-scale debt purchases.

Weaker Euro

The shared currency will probably weaken to about $1.15 by the middle of next year, Sinche, who’s based in Stamford, Connecticut, said today in an interview on Bloomberg Television.

Draghi said the ECB is “searching for actions that could attenuate the current crisis,” as long as they don’t breach the central bank’s inflation-fighting mandate. The bank cut its main refinancing rate to a record low 0.75 percent last week.

While the ECB never pre-commits, it will “do everything to maintain price stability -- from both sides -- in the euro area,” Draghi told lawmakers in Brussels today when asked if the central bank could cut rates again.

The shared currency has fallen 3.6 percent in the past three months, the worst performance among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest winner, rising 4.7 percent, followed by a 3.1 percent increase in the dollar.

Japan Surplus

The yen tends to appreciate in periods of financial and economic turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. Government data showed the surplus was 215.1 billion yen ($2.7 billion) in May, compared with the median estimate for an excess of 493.1 billion yen in a Bloomberg News survey of economists.

Bank of Japan (8301) policy makers are set to meet on July 11-12. Governor Masaaki Shirakawa has said it is fully committed to pursuing “powerful monetary easing” until a 1 percent inflation target set in February is in sight. The central bank has expanded its asset-purchase fund, its main policy tool, by 20 trillion yen this year in a bid to stimulate growth.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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


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