Euro Falls Versus High-Yield Currencies as German Exports Drop

March 10 (Bloomberg) -- The euro fell against higher- yielding currencies after a report showed that German exports unexpectedly slumped in January, adding to evidence the European economic recovery is struggling to take hold.

The single European currency was at its lowest level against the New Zealand dollar in more than three weeks after the German Federal Statistics Office said sales abroad plunged 6.3 percent from the previous month. Economists had forecast a 0.5 percent increase. The yen declined against all 16 of its most-traded peers after a Chinese report showed exports increased the most in three years, damping demand for the Japanese currency as a refuge.

“The data out of Europe has been weak and that is preventing the euro from appreciating,” said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London. “The Chinese figures were good, which is supporting a recovery scenario outside of Europe and the U.K.”

The euro fell 0.6 percent to 51.98 cents per New Zealand dollar of 9:37 a.m. in London. The yen slid 0.9 percent to 63.81 per New Zealand dollar, the weakest since Feb. 23. The Japanese currency traded at 122.74 per euro from 122.35. It weakened 0.4 percent to 90.36 per dollar, while the euro dropped 0.1 percent to $1.3588.

‘Good’ Chinese Data

China’s customs bureau said exports rose 45.7 percent in February from a year earlier, the third monthly increase and the biggest gain since February 2007. The figure was expected to rise 38.3 percent, according to a Bloomberg News survey.

“Conditions will continue to improve on the risk sentiment front and the emerging-market currencies and commodity-linked currencies are likely to outperform over the coming weeks,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London.

A Japanese government report today showed machinery orders dropped 3.7 percent in January from the previous month, indicating subdued appetite among the nation’s companies to ramp up capital spending.

The pound fell for a third day against the dollar and the euro as a report from the Office for National Statistics showed output in the U.K. contracted 0.4 percent in January from December, when it increased 0.5 percent. Economists had predicted a 0.3 percent expansion.

U.K. Economy

“Sterling remains weak amid ongoing concerns over debt ratings and political dynamics,” said Jeremy Stretch, a senior currency strategist at Rabobank International in London.

The pound dropped against all 16 of its most-traded peers, including a 0.6 percent decline to $1.4905 and a 0.5 percent slide to 91.17 pence per euro. It fell most against the New Zealand dollar, losing 1.1 percent to 70.64 pence.

Bank of England officials last week left the benchmark interest rate unchanged at 0.5 percent and put the asset- purchase program on hold for a second month. Central bank Governor Mervyn King said the economy faces a “gradual recovery” from the recession and has pledged to aid the pickup by buying more bonds if needed. Policy maker Adam Posen told Sky News yesterday growth “will pick up from here.”

The euro fell to the lowest level against the Australian dollar since 1997 after Fitch Ratings Director Christopher Pryce said yesterday in London Greece’s prospects in the next six to nine months are less certain than over the short term.

There are “already the beginnings of dissent within the Greek Cabinet” as the as the government struggles to implement measures to cut its budget deficit of 12.7 percent of gross domestic product, Pryce said.

U.S. Rates

The U.S. dollar weakened against New Zealand’s dollar for a fourth day and traded near a two-month low against Canada’s currency after Federal Reserve Bank of Chicago President Charles Evans said yesterday he expects the central bank to hold its target rate at a record low for the next “three or four meetings.”

“With the unemployment rate at 9.7 percent and inflation significantly under my benchmark for price stability, there is no conflict between our policy goals,” Evans said in the text of a speech in Arlington, Virginia. Weakness in the job market, including long-term unemployment, means that “this accommodation will likely be appropriate for some time.”

Interest-rate futures on the Chicago Board of Trade yesterday showed a 41 percent chance U.S. policy makers would raise the target rate by at least a quarter-percentage point to 0.5 percent by September. The odds were 43 percent a day ago.

The greenback dropped to 70.57 cents per New Zealand dollar from 70.29 cents. It earlier touched 70.68 cents, the weakest since Feb. 17. The U.S. currency fetched C$1.0270 from C$1.0261 in New York yesterday, when it reached C$1.0236, the lowest since Jan. 15.

To contact the reporters on this story: Matthew Brown in London at mbrown42@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net