The euro retreated from its highest level against the yen in four months before data that may add to signs Europe’s debt crisis is weighing on growth.
The 17-nation euro weakened versus most of its major peers before a German report forecast to show investor confidence hovered near the lowest level this year. The yen was close to a one-week low against the dollar amid speculation the Bank of Japan (8301) will expand monetary stimulus to rein in currency strength that hurts exporters.
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
“The euro region’s economy will worsen because of austerity measures,” said Daisaku Ueno, a senior foreign- exchange and fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, a unit of Japan’s biggest listed bank. “The euro is more likely to decline when investors recognize the worsening of Europe’s economy and how deeply rooted the debt crisis is.”
The shared currency dropped 0.2 percent to 103.07 yen as of 6:43 a.m. in London. It yesterday reached 103.86, the strongest since May 9. It slid 0.2 percent to $1.3096. The yen was little changed at 78.70 per dollar, after yesterday touching 78.93, the weakest level since Sept. 7.
Germany’s ZEW Center for European Economic Research is forecast to say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, was at minus 20 in September, according to a Bloomberg News survey of economists. The gauge slid to minus 25.5 last month, the lowest this year.
Euro RSI
The euro’s 14-day relative strength index versus the dollar and the yen remained above 70 today, a level that some traders see as a sign that an asset price may be about to reverse course. The European Central Bank on Sept. 6 unveiled an unlimited bond-purchase program to cap borrowing costs of the region’s indebted nations, spurring a rally in the common currency.
In Japan, the central bank is set to begin a two-day policy meeting today. Five of 21 economists surveyed by Bloomberg predict policy makers will announce further easing tomorrow, with sixteen expecting a move by October.
The BOJ increased a fund to buy assets such as government debt by 5 trillion yen ($64 billion) to 45 trillion yen in July, and has kept its target for overnight lending between zero and 0.1 percent since October 2010.
“A lack of additional monetary easing could risk a stronger yen,” said MUFJ Morgan’s Ueno. The BOJ will probably increase its asset-purchase program by about 5 trillion yen, he said.
Territorial Dispute
Demand for the Japanese currency was also limited as China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that’s tripled in value in the past decade to more than $340 billion.
Toyota Motor Corp. (7203), Honda Motor Co. (7267) and Panasonic Corp. (6752) reported damage to their operations in China as thousands marched in more than a dozen cities on Sept. 16 after Japan said last week it will purchase islands claimed by both countries. Protesters called for boycotts of Japanese goods and in some instances smashed store fronts and cars.
The yen weakened 2 percent over the past week, the biggest decline among 10 developed-nation currencies on the Bloomberg Correlation-Weighted Indexes. The dollar fell 0.7 percent and the euro strengthened 1.3 percent.
The Australian dollar held onto a decline from yesterday after minutes of the Reserve Bank’s meeting this month showed officials saw the currency’s strength as a risk to the economy, signaling scope to cut interest rates.
RBA Minutes
“The current assessment of the inflation outlook continued to provide scope to adjust policy in response to any significant deterioration in the outlook for growth,” according to the minutes of the Sept. 4 gathering, where policy makers held the overnight cash rate target at 3.5 percent.
The so-called Aussie traded at $1.0456 from $1.0476 yesterday, when it dropped 0.7 percent.
Australia’s currency may rebound to a six-month high in the next couple of weeks, said Australia & New Zealand Banking Group Ltd. (ANZ), citing trading patterns.
The Aussie may advance to $1.0850 after last week’s “impulsive move higher” took the currency above the 50-day, 100-day and 200-day moving averages, according to Timothy Riddell, head of global markets research at ANZ. The level was last seen on Feb. 29.
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