Euro Weakens for Fifth Day on Bets ECB Will Cut Rates; US Dollar Rises
London (Nov 1) The euro slid for a fifth day against the dollar as signs of economic weakness in the single currency bloc fueled speculation the European Central Bank will cut interest rates as soon as its meeting next week.
The 17-nation currency headed for its biggest weekly loss since February after data yesterday showed the region’s inflation unexpectedly slowed and the jobless rate climbed to a record. The yen strengthened against all except two of its 16 major counterparts as declines in stocks boosted demand for haven assets. Norway’s krone advanced after manufacturing expanded at the fastest pace since May 2012. A gauge of currency volatility increased for a second day.
“Markets are recalibrating their assumptions for what the ECB may do in the near future after those fairly shocking inflation numbers yesterday,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It looks like the euro is going to test all the way back towards the support between $1.3450 and $1.3570,” he said, referring to levels where there may be buy orders.
The euro fell 0.4 percent to $1.3526 at 7:03 a.m. in New York, extending this week’s slide to 2 percent, the most since the period ended Feb. 8. The shared currency dropped 0.5 percent to 132.93 yen after sliding to 132.61, the lowest since Oct. 11. The yen strengthened 0.1 percent to 98.29 per dollar.
Bank of America Corp., UBS AG and Royal Bank of Scotland Group Plc all forecast the ECB will cut rates on Nov. 7. BNP Paribas SA, Societe Generale SA, JPMorgan Chase & Co. and Scotiabank predict a reduction in December, when the central bank will publish new economic projections. The ECB last lowered its benchmark rate on May 2 to a record 0.5 percent.
The euro area’s annual inflation rate declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September, the European Union’s statistics office said yesterday. Euro-area unemployment was at a record 12.2 percent in September, separate data showed.
“The euro is being sold as weaker inflation data suddenly put an ECB rate cut back on the table,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “For the euro to extend drops, we need to see an actual rate cut in Europe or a slew of strong data out of the U.S.”
The euro has slumped 1 percent this week, the worst performer after the Swedish krona of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.2 percent and the yen rose 0.3 percent.
A measure of price swings among the currencies of Group of Seven nations rose to a two-week high. The JPMorgan G7 Volatility Index climbed seven basis points to 8.03 percent after reaching 8.04 percent, the most since Oct. 17. It slid to 7.48 percent Oct. 28, the lowest this year.
The yen advanced for a second day versus the euro and dollar as the MSCI Asia Pacific Index of shares fell 0.5 percent and the Topix index of Japanese equities dropped 0.9 percent, boosting demand for the safety of the currency.
The Bank of Japan yesterday maintained its pledge to expand the monetary base by as much as 70 trillion yen and forecast inflation will reach its 2 percent target, even as some board members cautioned that price outlook was too optimistic.
The Bloomberg U.S. Dollar Index gained for a sixth day, rising 0.1 percent to 1,012.88 after increasing to 1.013.66, the highest since Oct. 16.