Bloomberg News

Euro Remains Lower Before German Business Confidence Data

August 27, 2012

The euro remained lower following a drop at the end of last week before a report today that may show German business confidence fell to a two-year low, adding to evidence Europe’s debt crisis is hurting the region’s economies.

The 17-nation currency also maintained a decline versus the majority of its 16 peers before German Finance Minister Wolfgang Schaeuble meets his French counterpart today to discuss Greek budget targets. Demand for the dollar was limited before Federal Reserve Bank of Chicago President Charles Evans speaks today amid speculation the U.S. central bank will expand monetary easing that may debase the currency.

“We can see fundamentals deteriorating in the euro region,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The euro is in a long-term downtrend.”

The euro traded at $1.2510 as of 12:59 p.m. in Tokyo after dropping 0.4 percent to $1.2512 in New York on Aug. 24. It was at 98.51 yen following a 0.2 percent slide to 98.44. The dollar bought 78.75 yen from 78.67.

The Munich-based Ifo institute is forecast to say today that its business climate index for Germany slid to 102.7 in August, a level unseen since March 2010, according to the median estimate of economists in a Bloomberg News survey. That compares with a reading of 103.3 in July.

Germany’s Schaeuble will meet French Finance Minister Pierre Moscovici today. Schaeuble said a new aid package for Greece “isn’t the right path” for solving the debt crisis, Tagesspiegel am Sonntag reported over the weekend, citing an interview.

Monetary Policy

Europe’s single currency has declined 4.8 percent in the past six months, the biggest loss among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the best performer with a 5.5 percent advance, while the dollar rose 2.8 percent.

The Chicago Fed’s Evans will speak today in Hong Kong and central bank Chairman Ben S. Bernanke will deliver a speech on Aug. 31 at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming.

“There is scope for further action by the Federal Reserve to ease financial conditions and strengthen the recovery,” Bernanke wrote in a letter dated Aug. 22 to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee.

Euro Shorts

Futures traders cut their bets that the euro will fall against the dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the European currency compared with those on a gain was 123,932 on Aug. 21, down from so-called net shorts of 137,810 a week earlier.

“The decrease in euro shorts indicates substantial expectations for some form of U.S. monetary easing,” said Makoto Noji, a Tokyo-based currency strategist at SMBC Nikko Securities Inc., a unit of Japan’s second-biggest listed bank by market value.

The pound may extend a decline after sliding below the $1.58 level, according to Overseas-Chinese Banking Corp., citing trading patterns.

The U.K. currency slid to as low as $1.5798 today before trading little changed at $1.5806. It may retreat to its 200-day moving average of $1.5719, Singapore-based OCBC analysts led by Selena Ling wrote in a research note today.

South Korea’s won trimmed losses after Moody’s Investors Service raised its credit rating on the nation today by one level to Aa3, citing “strong” fiscal fundamentals and economic resilience to external shocks.

Korean Treasury debt’s status as a “favourite destination for bond investment” will be reinforced by the upgrade, Wee- Khoon Chong, a Hong Kong-based strategist at Societe Generale SA, wrote in an e-mailed note.

The won pared an earlier decline of as much as 0.3 percent and was at 1,134.50 per dollar, little changed from the Aug. 24 close.

To contact the reporter on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net


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