Euro Falls 5th Day Versus Yen as Economy Shrinks; Dollar Rallies
2012-03-06 13:51:03.61 GMT
By Allison Bennett and Keith Jenkins
March 6 (Bloomberg) -- The euro declined for a fifth day against the yen after a report showed the region’s economy contracted last quarter, adding to signs the European debt crisis is hampering global growth.
The dollar rose against all its major counterparts except the yen, reaching a two-week high versus the 17-nation currency, a day after Federal Reserve Bank of Dallas President Richard Fisher said investors should prepare for less U.S. monetary easing. Australia’s dollar weakened for a third day after the central bank said there’s scope to cut interest rates.
“Anybody who is short euro, Aussie, the whole risk spectrum, is in control of the market right now, and that’s helping the dollar,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York.
“Europe continues to be a basket case and the underperformance of the Aussie is a clear sign that the sheen is off the risk trade.”
The euro slid 1.3 percent to 106.35 yen at 8:47 a.m. in New York, extending its decline in the past week to 1.7 percent. The shared currency fell 0.7 percent to $1.3128 after dropping to $1.3126, the lowest level since Feb. 17. The dollar slipped 0.7 percent to 81.03 yen.
The euro has weakened 0.8 percent in the past week, according to Bloomberg Correlation-Weighted Indexes that track
10 developed-nation currencies. The dollar has strengthened 2 percent, and the yen rose 1.2 percent.
Europe’s gross domestic product shrank 0.3 percent from the third quarter, the region’s statistics office said today, confirming an initial estimate published on Feb. 15. Exports fell 0.4 percent and household spending declined 0.4 percent.
The ECB will keep its benchmark interest rate at a record low 1 percent on March 8, a Bloomberg News survey showed.
The euro dropped as Greece struggles to complete a bond exchange with private investors by March 8 in order to receive a
130 billion-euro ($171 billion) bailout. Greece expects bondholders to accept the offer and is ready to force them to participate if necessary, Finance Minister Evangelos Venizelos said in a Bloomberg Television interview in Athens yesterday.
“There are still good reasons to sell the euro,” said Chris Walker, a currency strategist at UBS AG in London. “The euro remains for now a risk currency. There is still significant event risk, particularly with regard to the Greek private-sector involvement, and the economic picture remains negative.
Fundamental drivers, such as GDP, are pointing downwards.”
The so-called 25-delta risk reversal rate for the euro versus the dollar was at minus 2.49 percent today, up from minus
2.74 on March 2. A negative rate signals greater demand for euro puts relative to calls. Calls grant the right to purchase a currency, while puts allow for sales.
The yen rose against the dollar for a second day as it rebounded from oversold levels for the first time in 13 days.
Its 14-day relative strength index advanced above the 30 level, which indicates an asset may have declined too far, too quickly, for the first session since Feb. 16.
Demand for the Japanese currency was buoyed as futures on the Standard & Poor’s 500 Index fell 0.8 percent and the MSCI World Index fell 0.8 percent.
The U.S. currency appreciated after Fisher said yesterday he opposes additional bond purchases by the central bank. Recent reports have highlighted that U.S. growth is broadening, with data yesterday showing service industries unexpectedly expanded last month at the fastest pace in a year.
“If the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Fisher said yesterday in Dallas.
Intercontinental Exchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S.
trading partners, gained 0.5 percent to 79.749.
The gauge may find it difficult to strengthen further without “clear euro-negative news,” according to Lloyds Bank Corporate Markets, citing trading patterns.
The Dollar Index “failed to break above the 50-day moving average at 79.67 and the 76.4 percent Fibonacci retracement of the second half of the February down move at 79.64,” foreign- exchange strategists Adrian Schmidt and Jennifer Hau wrote today in a note to clients. “These levels and the 80 area above them provide significant resistance,” they wrote.
The Dollar Index last rose above 80 Feb. 16, when it reached 80.119, the highest level since Jan. 25, according to data compiled by Bloomberg.
Australia’s dollar fell to a five-week low after the central bank left its benchmark rate at 4.25 percent and reiterated it has scope to ease monetary policy if needed.
The Reserve Bank of Australia said in a statement that while current settings are “appropriate for the moment,” there is scope for easier policy if demand weakens “materially.”
“The RBA has kept an easing bias,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “The statement may have been more dovish than some people have expected. I see more downside to the Aussie.”
Australia’s dollar dropped 0.9 percent to $1.0574 after sliding to $1.0566, the lowest since Jan 30.