The euro headed for the biggest weekly drop against the yen in seven months as Spain’s rising borrowing costs fueled concern that the region is failing to contain its debt crisis.
The 17-nation currency traded at almost a three-week low versus the dollar before data next week that may show German exports fell and growth in French industrial production slowed, adding to evidence that the fiscal woes are hampering the region’s economies. Demand for the greenback was supported as data indicating a recovery in the U.S. labor market damped speculation the Federal Reserve will add new stimulus. The yen gained against its peers as Asian stocks fell for a third day.
“We haven’t seen any major improvements in the European debt situation,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “After Greece, investors may be beginning to shift their focus onto countries like Spain, Portugal and Italy. I expect the euro will gradually sink as the region’s economy deteriorates.”
The euro rose 0.1 percent to 107.70 yen at 7:27 a.m. in New York from 107.61 yesterday. It has fallen 2.6 percent this week, the steepest five-day slide since the week ended Sept. 9. The currency was little changed at $1.3069, after sliding to $1.3035 yesterday, the weakest level since March 15. The dollar was little changed at 82.41 yen.
Spain, the euro-region’s fourth-largest economy, is in “extreme difficulty,” Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout for the second time this week. Spanish bonds fell yesterday, pushing the yield on the 10- year benchmark bond to 5.84 percent, the highest since December, and widening the spread with similar-maturity German bunds to more than 4 percentage points.
The yield on Spain’s 10-year benchmark bond has jumped nearly one percentage point since March 2, when Rajoy announced the government would miss its budget-deficit target this year. He warned that public debt will surge to a record 79.8 percent of GDP this year as it imposes the deepest austerity in at least three decades.
German exports probably decreased 1.2 percent in February from January, when they rose 2.4 percent, according to the median estimate of economists surveyed by Bloomberg News before the report due on April 10. In France, output increased 0.2 percent in February, after gaining 0.3 percent the prior month, another poll showed before the nation’s statistics office releases data the same day.
Euro Worst Performer
The euro has declined 1.3 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 1.6 percent and the dollar has appreciated 1 percent.
U.S. nonfarm payrolls probably rose by 205,000 in March after climbing by 227,000 in February, economists in a Bloomberg survey forecast ahead of today’s data. A separate report may show the jobless rate held at a three-year low of 8.3 percent. That would follow data from ADP Employer Services this week that showed U.S. companies added 209,000 workers in March after hiring 230,000 in February.
“The dollar will strengthen if the job market improves further,” said FX Prime’s Ueda. “If the unemployment rate falls below 8.3 percent, investors may buy the dollar expecting the Fed to start the rate-hike cycle at the end of next year.”
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was at 80.02 from 80.08 yesterday, when it touched 80.18, the highest since March 16.
The gauge may gain toward 80.74, the March 15 high, after rising above the so-called resistance level of 79.96 yesterday, JPMorgan Chase & Co. said, citing trading patterns.
“Short-term bias suggests additional upside is likely,” Niall O’Connor, a New York-based technical analyst at JPMorgan, wrote in a note yesterday. “We continue to highlight the setup in the DXY as the retracement from the 78.66 weekly low and break through the 79.95 resistance suggests a closer test of the 80.74 March peak is underway as the broad consolidation phase remain firmly intact,” he wrote, referring to the Dollar Index. Resistance is where there may be orders clustered to sell.
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