The euro declined toward a six-week low against the yen before reports this week that economists said will show European inflation stagnated in June and consumer confidence in Germany declined this month.
The 17-nation currency fell for the fourth time in five days versus the dollar after German Chancellor Angela Merkel said she hasn’t softened her stance on measures to stem contagion that’s prompted five member states to seek international aid. A gauge of currency volatility dropped for a sixth day to the lowest since April.
“Euro negativity is still pretty elevated,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “There’s still a great deal of uncertainty about how the European problems are going to be worked through.”
The euro declined 0.3 percent to 96.68 yen at 9:31 a.m. in London after falling to 96.43 yen on July 12, the lowest level since June 1. The single currency dropped 0.2 percent to $1.2228. It slid to $1.2163 on July 13, the weakest since June 2010. The yen gained 0.1 percent to 79.08 per dollar.
The euro has declined 4 percent in the past three months, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen advanced 5.9 percent, while the dollar gained 4 percent.
The rate of inflation in the euro area was unchanged in June from the previous month, when it fell 0.1 percent, according to Bloomberg News survey before the European Union’s statistics office report. A gauge of investor confidence in Germany, the region’s biggest economy, slid to minus 20 this month from minus 16.9 in June, a separate survey showed ahead of the data tomorrow.
A banking union involving a financial overseer for the euro area will have to include joint oversight on a “new level,” Merkel said yesterday in an interview with broadcaster ZDF in Berlin. German lawmakers are scheduled to debate aid to recapitalize Spanish banks this week.
The euro may drop to a support level at $1.2151 and then toward the “psychologically important” level of $1.20, Mitul Kotecha, head of global currency strategy at Credit Agricole Corporate & Investment Bank in Hong Kong, wrote in a note to clients. Support is an area where buy orders may be clustered.
The $1.2151 level was last seen on June 14, 2010, according to data compiled by Bloomberg. The euro last touched $1.20 on June 10 the same year.
The difference in the number of wagers on a decline in the euro compared with those on a gain, known as net shorts, was 165,705 on July 10 compared with 146,177 a week earlier, according to figures from the Washington-based Commodity Futures Trading Commission. Traders have held net short positions in the shared currency since last August, the data show.
The implied volatility of three-month options on Group of Seven currencies fell to 9.06 percent, according to a JPMorgan Chase & Co. measure, the lowest since April 30. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profits.
Paul McCairn says the pound’s appreciation to a more than 3 1/2-year high against the euro is cutting profit at the machinery manufacturer his father set up near Birmingham, England, in 1984.
“We’ve got about 30,000 pounds ($46,620) of stock sitting in a warehouse in Paris and I am watching that stock fall in value,” McCairn, managing director of Bri-Mac Engineering Ltd., which sells about 45 percent of the bearing housings it produces abroad, said in a telephone interview on July 13. “It makes the U.K. product, our product, less competitive and less attractive for the French and the Germans to buy.”
Even with the U.K. in its first double-dip recession since 1975, exports to Europe falling and the Bank of England adding to the supply of sterling by injecting 375 billion pounds of stimulus, the pound rose 2.7 percent the past six months. That’s the best performance of the basket of 10 developed-nation currencies tracked by Bloomberg.
The pound was little changed today at 78.68 pence per euro after appreciating to 78.54 pence, the strongest level since Nov. 3, 2008. Sterling dropped 0.2 percent to $1.5540.
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