Euro Weakens to Lowest in Almost One Year on Outlook

Frankfurt (Aug 26)  The euro fell to its lowest in almost a year versus the dollar on speculation the European Central Bank will increase monetary stimulus while the U.S. moves toward interest-rate increases.

The greenback traded at almost a six-month high against a basket of its major peers as U.S. consumer confidence unexpectedly increased. New Zealand’s dollar slid to the lowest in six months after the nation’s trade balance slipped into deficit. Turkey’s lira gained on signs the central bank may pause monetary easing and Brazil’s real rose amid bets a voter poll will show reduced support for the incumbent president. The ECB holds a policy meeting next week.

“The data we’ve being seeing out of the U.S. compared to the euro zone has continued to show divergence both in economic performance and likely in monetary policy, with the Federal Reserve starting to begin the process of moving away from its accommodative policy stance whereas the ECB appears to be just at the beginning of its journey,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “That divergence is very clear and is something that has been putting pressure on euro-dollar.”

The euro dropped 0.2 percent to $1.3167 as of 5 p.m. in New York, touching the lowest level since Sept. 9, 2013. Europe’s shared currency traded down 0.2 percent at 137.03 yen. The dollar was little changed at 104.06 yen.

Dollar Demand

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, was little changed at 1,030.60, after reaching 1,031.86, the highest since Feb. 3.

“We had a big dollar move last week, so it’d be expected that you’d have a pause,” said Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal. “Next week is a lot more important with a lot more first-tier data. I would be long the dollar.” A long position is a bet an asset will increase in value.

New Zealand’s dollar fell against most of its 16 major counterparts after statistics bureau data today showed the nation’s trade deficit in July was bigger than the median estimate of economists surveyed by Bloomberg.

“New Zealand’s July trade balance disappointed,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia. “Downward pressure on the New Zealand dollar remains, particularly given speculation of RBNZ intervention,” Capurso said in reference to the Reserve Bank of New Zealand.

New Zealand’s currency fell 0.1 percent to 83.32 U.S. cents after touching the weakest since Feb. 27.

Lira Rises

Turkey’s lira rose 0.6 percent amid indications that the central bank may pause monetary easing.

Nine out of 16 economists surveyed by Bloomberg News predict the bank will keep the benchmark repurchase rate unchanged tomorrow at 8.25 percent. The nation’s central bank has gradually increased the average charge of funding provided to banks this month, according to data compiled by Bloomberg.

Brazil’s currency gained the most of the dollar’s 31 major counterparts amid speculation that President Dilma Rousseff is declining in popularity after overseeing the slowest economic growth in two decades. The real rose 1.2 percent to 2.2617 per dollar.

The ECB will probably cut interest rates 10 basis points when it meets Sept. 4, Nick Matthews, senior economist at Nomura Holdings Inc. in London, wrote in a note yesterday. The Japanese broker sees an 80 percent likelihood that the central bank will cut rates by October.

Draghi View

ECB President Mario Draghi said in a speech at a conference in Jackson Hole, Wyoming, last week that investor bets on euro-area inflation “exhibited significant declines at all horizons” in August.

A preliminary reading of German inflation due on Aug. 28 may show price gains in the euro area’s largest economy stalled in August from the previous month. A European Commission report the same day may show its index of executive and consumer sentiment fell to the lowest level since February.

The euro has fallen 0.6 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has advanced 1.6 percent, the best performer after the Norwegian krone, while the yen has weakened 0.8 percent.

The U.S. sold $29 billion of two-year notes at close to the highest yield in three years today. The notes yield the most versus similar-maturity German debt since 2007.

Fed Chair Janet Yellen said last week that an improving U.S. jobs market may prompt the central bank to raise interest rates next year. The Fed is winding down its monthly bond-buying and has held its benchmark interest-rate target at virtually zero since December 2008.

Consumer confidence in the U.S. unexpectedly climbed to the highest level in almost seven years this month, a report showed today. U.S. durable-goods orders excluding transportation fell 0.8 percent in July, missing the median forecast for a 0.5 percent advance, a report showed today. Overall orders however jumped 22.6 percent, the most on record, as bookings surged for commercial aircraft.

Source:  Bloombeerg