Euro Falls as German Survey Shows Region’s Slow Growth

The euro fell against most major currencies after a survey showed German investor sentiment stayed negative this month as the region’s economy struggles amid the debt crisis.
The 17-nation currency weakened from four-month highs versus the dollar and yen amid concern Spain will delay seeking a bailout after the European Central Bank pledged to buy bonds to keep the region’s borrowing costs down. Australia’s dollar dropped for a second day after policy makers said the strength of the currency was damaging economic growth. The Dollar Index rose for a second day, strengthening from a six-month low reached Sept. 14 after the Federal Reserve began its third round of monetary easing.

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The euro dropped 0.3 percent to 102.93 yen as of 9:57 a.m. in Tokyo from the close yesterday, when it reached $103.86, the strongest level since May 9. Photographer: Kiyoshi Ota/Bloomberg

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Sept. 18 (Bloomberg) -- Alan Ruskin, global head of G-10 foreign-exchange strategy at Deutsche Bank AG, talks about Federal Reserve policy and the outlook for the euro. Ruskin speaks with Tom Keene and Scarlet Fu on Bloomberg Television's "Surveillance." (Source: Bloomberg)

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Sept. 18 (Bloomberg) -- Daragh Maher, a currency strategist at HSBC Holdings Plc, discusses the outlook for the euro, U.S. dollar and the Norwegian krone. He speaks with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

“The market got a little bit ahead of itself with the one- two punch from the ECB and the Fed in the last two weeks,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “It really hasn’t changed the fundamental outlook for recession in Europe and weak growth in the U.S.”
The euro dropped 0.6 percent to $1.3040 at 1:29 p.m. in New York after appreciating to $1.3172 yesterday, the strongest level since May 4. The common currency declined 0.7 percent to 102.56 yen. It rose to 103.86 yesterday, the highest since May 9. The yen was little changed at 78.65 per dollar.

Further Weakening

The euro may continue to weaken against the dollar as the pair’s 14-day relative strength index remained above the level of 70 that some traders see as a sign an asset is overvalued and may be poised to reverse direction. It was at 72.5 today.
The shared currency has appreciated 3.3 percent during the past month, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid optimism the ECB will halt the spread of the financial crisis. The single currency has weakened 4.2 percent during the past 12 months.
The yen advanced versus most of its 16 major counterparts as global stocks fell and as a territorial dispute with China escalated. Japanese retailers shuttered stores in China after protesters of Japan’s purchase of uninhabited, disputed islands last week smashed store fronts and overturned cars. The yen traditionally gains in times of economic uncertainty due to the nation’s position as a net-creditor.
The gains were limited as Japan’s central bank started a two-day policy meeting where five of 21 economists surveyed by Bloomberg predict policy makers will announce further monetary easing tomorrow.

Central Bank

“If tensions continue to rise, you could see a further flight out of emerging-market currencies, and perhaps the dollar and yen would rise together against other major global currencies,” John Brady, managing director of global futures and options at futures broker R.J. O’Brien & Associates in Chicago, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman and Stephanie Ruhle. “I would suggest that anything above 73 or 74 will be extremely painful and that will probably hasten the BOJ to do something, but probably not today or tomorrow.”
The BOJ increased the size of a fund to buy assets such as government debt by 5 trillion yen ($60 billion) to 45 trillion yen in July, and has kept its target for overnight lending between zero and 0.1 percent since October 2010.
Yen printing by the Bank of Japan (8301) is trailing money creation by the Fed and ECB, boosting risks the Asian nation’s currency will rise to record levels, according to Mizuho Securities Co.

Dollar Measure

The Dollar Index (DXY) rose for a second day, gaining 0.3 percent to 79.218. The gauge, which is weighted 57.6 percent to movements in the euro, tracks the dollar against six major currencies.
International demand for U.S. financial assets rose more than forecast in July with net buying of long-term equities, notes and bonds totaled $67 billion during the month. That compares with net purchases of $9.3 billion in June, the Treasury Department said today in Washington.
Australia’s dollar declined after the central bank discussed signs that labor demand had softened “a little further,” housing showed some improvement while a higher currency was taking a toll, according to minutes released of its Sept. 4 meeting.
“Australia’s dollar is lower after RBA minutes show the central bank’s proclivity for easing, which is nothing new, but it has served as a reminder and resulted in other risk currencies outperforming it, especially New Zealand’s dollar,” John Curran, a senior vice president at CanadianForex Ltd., an online foreign-exchange dealer wrote to clients today.

Aussie Falls

The Australian currency fell 0.4 percent to $1.0439 after climbing to $1.0625 on Sept. 14, the highest since March 20. It fell 0.4 percent to NZ$1.2628 per Australian dollar
Spanish borrowing costs declined at a bill sale today, its first auction since the European Central Bank on Sept. 6 announced a plan to buy the region’s government debt to contain borrowing costs.
“If the ECB is promising to support their bond markets, do they need support?” Alan Ruskin, global head of G-10 foreign- exchange strategy at Deutsche Bank AG, said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene. “At some point in time the market will push Spain to ask for help, and the ECB will support the Spanish bond market. We could possibly still need for Spanish yields to back up a little bit.”
Spain will consider seeking a bailout if the conditions imposed are acceptable, Deputy Prime Minister Soraya Saenz de Santamaria said, the strongest signal from the government that it’s positioning to reach for the financial lifeline.
Germany’s ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010.
Economic growth in Germany will slow to 0.8 percent for 2012 from 3 percent last year, the Kiel-based Institute for the World Economy said on Sept. 13.