Bloomberg News

Euro Weakens Versus Peers on Signs Economy Shrank; Krona Falls

October 24, 2012

The euro dropped versus most major peers, touching the lowest level in more than a week against the dollar, after data showed services and manufacturing in the region contracted in October more than economists predicted.

The 17-nation currency fell against the yen as the Ifo institute in Munich said German business confidence sank to its lowest level since February 2010. The euro pared losses after reports on talks between Greece and international-aid officials. Federal Reserve policy makers end a two-day meeting today. Sweden’s krona slid for a fourth day against the dollar after data showed consumer confidence worsened.

“For the German Ifo, the current assessment was weaker and expectations did not rise, which might’ve been a bit surprising,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “That’s one of the main things leading to weakness in the euro today.”

The shared currency weakened 0.2 percent to $1.2956 at 12:49 p.m. New York time after falling earlier to $1.2921, the lowest level since Oct. 15. The euro lost 0.3 percent to 103.41 yen and reached 102.99 yen, the weakest since Oct. 17. The yen was little changed at 79.83 per dollar.

The euro trimmed its decline after a report that officials of the European Union, European Central Bank and International Monetary Fund rejected a German proposal to tighten Greek access to an aid account. ECB President Mario Draghi said the so-called troika has made no proposals yet on Greece. The officials have discussed an agreement that would pave the way for the next payment of aid funds to the debt-stricken country.

Next Payment

“It seems extremely likely Greece will be getting its next tranche of aid,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York, said in a telephone interview. “That’s what drove this spike.”

The Dollar Index (DXY) fluctuated after a report showed sales of new homes in the U.S. rose to a two-year high in September. Sales climbed 5.7 percent to a 389,000 annual pace, the most since April 2010, following a revised 368,000 rate in August, Commerce Department data showed.

The index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, was little changed at 80.027 after rising for the past four days.

Fed Meeting

Fed Chairman Ben S. Bernanke and his colleagues on the Federal Open Market Committee conclude a meeting in Washington today and release a statement on policy, including their current plan to buy $40 billion in mortgage-backed securities each month for an indefinite period as they seek to nurse the economic recovery.

Sixty-eight percent of 60 economists surveyed by Bloomberg News said the Fed chairman’s third round of asset purchases under quantitative easing will last until January 2014.

The euro weakened 4.7 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 2.8 percent.

The cost for European banks to borrow in dollars held near the lowest in a week, with the three-month cross-currency basis swap, the rate banks pay to convert euro interest payments into dollars, slipped to 25.3 basis below the euro interbank offered rate after touching 30 basis points below, according to data compiled by Bloomberg. It has traded between 24 and 30 basis points below euribor since Oct. 15.

“I’m quite impressed with the resilience of the euro,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said in a telephone interview. “The last time equities were trading at these type of levels, the euro was trading at the $1.26 area.”

German Confidence

The Ifo institute said its German business climate index dropped to 100 this month, from 101.4 in September.

A composite index based on a survey of purchasing managers in manufacturing and services industries in the euro area declined to 45.8 from 46.1 in September, London-based Markit Economics said. Economists surveyed by Bloomberg forecast an increase to 46.5. A number below 50 indicates contraction.

The krona dropped versus its major peers after the National Institute of Economic Research said Swedish consumer confidence index declined to minus 2.9 in October from 2 the previous month. The median prediction of economists surveyed by Bloomberg News was 1.7.

The krona lost 0.8 percent to 6.6978 per dollar and fell 0.5 percent to 8.6727 per euro.

Koruna, Aussie

The Czech koruna weakened for a fifth day against the euro as concern rose the country will fail to cut the budget deficit. The currency depreciated 0.3 percent to 25 per euro, extending its five-day retreat to 1 percent.

The Australian dollar gained versus all of its 16 most- traded counterparts after an industry report signaled a slowdown in Chinese manufacturing was abating, and as local data showed consumer prices rose more than economists forecast last quarter. It appreciated 0.7 percent to $1.0338 and strengthened 0.7 percent to 82.52 yen.

HSBC Holdings Plc (HSBA) and Markit Economics said a preliminary reading of a purchasing managers’ index for China climbed to 49.1 in October from 47.9 last month. China is Australia’s biggest trading partner.

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; 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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