Euro Extends Drop on Rate Cut Speculation as Copper Gains

Frankfurt (Nov 1)   The euro depreciated, heading for the biggest weekly drop against the dollar since February, and German two-year yields fell on speculation slowing inflation will prompt the European Central Bank to cut interest rates. Industrial metals rose as China’s manufacturing strengthened.

Europe’s shared currency weakened 0.4 percent to $1.3526 at 6:43 a.m. in New York, taking its decline for the week to 2 percent. German two-year yields dropped to 0.09 percent, the lowest level since July. The Stoxx Europe 600 Index retreated 0.3 percent while Standard & Poor’s 500 Index futures added less than 0.1 percent. Copper and aluminum advanced 0.4 percent. U.K. natural gas jumped the most since June after a processing plant had a power failure, curbing supply.

The ECB may cut rates next week after data yesterday showed the region’s inflation declined to the least since November 2009, Bank of America Corp. said. China’s manufacturing index rose more than analysts estimated to an 18-month high in October, an official report showed. U.S. factory output probably slowed last month, economists said before the release of Institute for Supply Management's manufacturing gauge.

“Markets are recalibrating their assumptions for what the ECB may do in the near future after those fairly shocking inflation numbers yesterday,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce, said by phone from London. “We’ve see what had been a fairly long euro position being pared. Markets might be getting themselves a little too bulled up on the expectation of action coming from the ECB as early as next week.”

Yields Slide

The euro declined against 15 of its 16 major counterparts, retreating 0.5 percent versus the yen to 132.93.

German two-year yields have dropped nine basis points this week, the biggest decline since the period ended March 1. Benchmark 10-year bund yields were little changed at 1.68 percent after dropping to 1.65 percent yesterday, the lowest level since Aug. 8.

Two shares declined for each that advanced in the Stoxx 600, trimming this week’s gain to 0.5 percent.

Renault SA, France’s second-biggest carmaker, lost 5.8 percent after its partner Nissan Motor Co. cut its full-year profit forecast. Royal Bank of Scotland Group Plc fell 5.4 percent after forecasting a “substantial” full-year loss. Vodafone Group Plc rose 1.8 percent after people familiar with the matter said AT&T Inc. is exploring a takeover of Europe’s biggest mobile carrier as soon as next year.