Bloomberg News

Euro Near One-Week Low Before ECB Meet, Spanish Auctions

February 07, 2013

The euro traded within 0.5 percent of a one-week low versus the dollar before European Central Bank policy makers meet today amid political turmoil that threatens to renew the region’s sovereign-debt crisis.

The 17-nation currency weakened from its highest since April 2010 against the yen before Spain prepares to auction bonds today amid calls for Prime Minister Mariano Rajoy to resign. ECB President Mario Draghi may indicate concern the economy is weak even as the bank hold rates, according to analysts. The New Zealand dollar fell after a government report pointed to a weak employment trend.

“Given the euro’s strength, Draghi is likely to remind us that the economy is still weak rather than giving some optimistic comments,” said Kikuko Takeda, a senior currency economist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “I see the euro falling at a modest pace in the mid- to long-term.”

The euro was little changed at $1.3533 at 6:57 a.m. in London from $1.3523 in New York. It reached $1.3459 on Feb. 5, the least since Jan. 29. The shared currency was 126.73 yen from 126.63 after yesterday touching 127.71, the strongest since April 2010. The yen traded little changed at 93.62 per dollar after depreciating to 94.06 yesterday, the weakest since May 2010.

The ECB, which has held its main refinancing rate at 0.75 percent since July, will make no change today, according to all 60 economists surveyed by Bloomberg News. ECB President Mario Draghi may make more dovish remarks, according to analysts.

Easing Options

“Our economists suggest that Mr. Draghi will probably soften the overall tone at the press conference, signaling that easing options are still available if needed,” New York-based Vassili Serebriakov, a currency strategist at BNP Paribas SA, wrote in a note to clients dated yesterday. “There are plenty of reasons to justify a more defensive euro tone.”

Spain will auction securities due in 2015, 2018 and 2029 today after the nation’s benchmark 10-year bond yield rose 24 basis points, or 0.24 percentage point, this week to 5.45 percent yesterday.

Prime Minister Rajoy faced calls to step down amid contested reports of corruption in his party. He has imposed the harshest austerity measures in Spain’s democratic history to curb the budget deficit and lower borrowing costs.

Competitive Devaluation

Declines in the yen against the U.S. dollar may be over for now as Japanese officials probably judge this year’s more than 7 percent drop to be sufficient, according to Royal Bank of Scotland Plc. Finance Minister Taro Aso said today Japan’s monetary easing was not aimed at competitive currency devaluation. Instead, it was an effort to spur the nation out of deflation.

“There is also a subtle shift in the rhetoric from the government that suggests that it thinks it has done enough to weaken the yen for now,” Singapore-based Greg Gibbs, a currency strategist at RBS, wrote in a note to clients dated today. “Tactically it makes sense to tone down the currency rhetoric for now.”

The yen has tumbled 8 percent this year, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has risen 3 percent, the best performance, and the dollar has added 0.1 percent.

Kiwi Slumps

New Zealand’s currency fell 0.3 percent to 78.39 yen and also slid 0.3 percent to 83.74 U.S. cents after employment declined for a third quarter. Payrolls slumped 1 percent, or 23,000 jobs, in the final three months of 2012, the statistics bureau said today. The workforce participation rate reached the lowest in eight years.

“The fall in the currency was to be expected given the drop in employment and the participation rate, but we look at these levels as a chance to buy the dips, particularly against the Aussie dollar,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington.

Australia’s currency maintained a drop against the yen from yesterday after the statistics bureau said employers cut 9,800 full-time positions in January even as the jobless rate remained unchanged at 5.4 percent. The so-called Aussie fetched 96.70 yen, following a 0.7 percent decline to 96.63 yesterday.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net

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


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