The euro fell to the lowest level in five weeks against the dollar after European Central Bank council member Axel Weber said the region’s economy may need help from the central bank through the end of the year.
The shared currency dropped to the least since July 1 versus the Swiss franc after Weber told Bloomberg Television the ECB should assist banks to prevent year-end liquidity tensions. The yen rose this week versus 14 of its 16 major counterparts on signs the global economic recovery is slowing, boosting demand for the currency as a refuge.
“The euro move shouldn’t be a surprise,” said Eric Fine, a portfolio manager in New York who helps Van Eck Associates Corp. oversee $3 billion in emerging-market assets. “Weber saying that it’s going to be quarter one of 2011 before they have a serious discussion on an exit is on the dovish side.”
The euro fell 0.9 percent to $1.2712 at 5 p.m. in New York, after touching $1.2664, the weakest since July 13. Japan’s currency was at 108.83 per euro from 109.49 yesterday, after reaching 108.26, the strongest since July 1.
The shared European currency traded at 1.3143 francs from 1.3233 francs yesterday, after touching 1.3140 francs. The yen fell 0.3 percent to 85.62 per dollar.
The common currency accelerated declines as the Stoxx Europe 600 Index fell 1.5 percent and the Standard & Poor’s 500 Index dropped 0.4 percent. Reports next week may show Japanese export growth slowed and German business sentiment weakened.
“Most of these discussions about the continuation of the exit I think will be focused on the first quarter,” Weber, who heads Germany’s Bundesbank, said in an interview with Bloomberg Television in Frankfurt yesterday. “It’s clear that we need to re-embark on a normalization procedure.”
German 10-year and 30-year bond yields both fell to record lows after Weber’s comments. The 10-year German yield fell as low as 2.26 percent, while the 30-year yield dropped as much as 8 basis points to below 2.89 percent.
Revisions to U.S. economic growth next week will probably indicate the pace of the expansion slowed even more in the second quarter, to a 1.4 percent annual rate from the 2.4 percent in a preliminary report on July 30, according to a Bloomberg survey.
“With the U.S. half-million jobless claims continuing to weigh on the equity markets, the U.S. dollar is gaining against all 16 major currencies in a reversion to safe-haven trading,” Andrew Busch, a global currency strategist at Bank of Montreal in Chicago, wrote in a note to clients.
The dollar gained against all of its major counterparts as investors sought the currency’s relative safety. The yen dropped against the greenback, erasing earlier gains, as it failed to appreciate through the 85 level.
“There’s a lot of momentum-driven trading that’s helping the dollar,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The market is cautious about taking it through much below 85, it’s a level that has been well supported.”
Speculation mounted the Japanese government will take steps to curb the yen’s appreciation versus the dollar. The currency has gained 14 percent this year, the best performance among 10 developed-world currencies, Bloomberg Correlation-Weighted Currency Indexes show.
The probability the Bank of Japan will take steps to affect currency markets is at a six-year high of 51 percent, according to a Morgan Stanley model that uses factors such as net positions in Japan’s currency. Japan hasn’t taken steps to weaken its currency since 2004.
“If the yen becomes considerably volatile or breaks 80, chances for an emergency meeting would become high,” said Hideo Kumano, a former BOJ official who is now chief economist at the Dai-Ichi Life Research Institute in Tokyo. “The impact of further accommodative steps may be limited; it would mainly be aimed at preventing the yen from becoming excessively strong.”
The yen’s climb to a 15-year high of 84.73 against the dollar on Aug. 11 has stoked concern that exporters’ earnings could weaken and deflation might deepen. Finance Minister Yoshihiko Noda said today he will meet with Prime Minister Naoto Kan next week to discuss the economy and currency.
The euro was poised for a second weekly loss versus the franc as French President Nicholas Sarkozy readies France’s 2011 budget along with a bill to increase the retirement age.
“Data have been consistently weak,” said David Deddouche, a foreign-exchange strategist at Societe Generale SA in Paris. “The trend is risk off and I’m expecting more franc strength.”
Australia’s dollar fell to a four-week low versus the yen as polls signaled tomorrow’s election may result in a hung parliament.
“Two factors have made the election more interesting --the threat of a hung parliament and significant differences across the major and minority parties on a mining sector tax,” David Forrester, a currency economist in Singapore at Barclays Capital, wrote in a note to clients. “We favor positioning for a weaker Aussie versus other commodity currencies.”
The Australian currency fell 0.4 percentto 76.53 yen.