Euro Weakens as Political Turmoil Damps Demand; Yen Gains
The euro fell for the first time in five days against the yen amid concern French presidential elections and Dutch government turmoil will disrupt efforts to stem the region’s sovereign-debt crisis.
Japan’s currency rose against all of its 16 most-traded peers as French President Nicolas Sarkozy trailed Socialist challenger Francois Hollande, who has called for more European Central Bank action, in a first-round vote, boosting demand for haven. Dutch Prime Minister Mark Rutte offered to quit after struggling to clinch an austerity deal. A gauge of German manufacturing unexpectedly fell, and global stocks dropped.
“You’ve got the French elections with Hollande taking the lead there, and there’s more risk for the financial markets associated with an Hollande victory,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “Germany’s PMI really came in quite a bit weaker than expected. All those things combined seem to gang up on the euro.”
The euro weakened 0.9 percent to 106.81 yen at 5 p.m. New York time. It depreciated as much as 1.4 percent, the biggest intraday drop since April 5. The shared currency declined 0.5 percent to $1.3156 and briefly fell below its 100-day moving average of $1.3121. The yen strengthened 0.4 percent to 81.18 per dollar.
The Swedish krona was the biggest loser versus the dollar among major currencies, tumbling 1 percent to 6.7568 to the greenback. New Zealand’s dollar, called the kiwi, depreciated 0.6 percent to 81.35 U.S. cents and touched 80.88 cents, a one- month low. Brazil’s real fell 0.5 percent to 1.8809 per dollar.
Implied volatility on three-month options on Group of Seven nations’ currencies touched 9.57 percent, the least since August 2008, according to a JPMorgan Chase & Co. index. The average over the past decade is 10.6 percent. Lower volatility tends to make investments in currencies of nations with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.
Higher-yielding assets also fell after an index signaled manufacturing in China, the world’s second-biggest economy, may shrink for a sixth month in April. A preliminary reading reported by HSBC Holdings Plc and Markit Economics was 49.1, versus 48.3 in March. Numbers below 50 point to a contraction.
Hollande won 28.6 percent of the vote in France yesterday, against 27.2 percent for Sarkozy, the interior ministry said in Paris. The anti-euro National Front, led by Marine Le Pen, got 18.1 percent of the vote. The second ballot is on May 6.
“It’s the fact that you’ve got someone in France who is not aligned with Germany, and what it means is you’re going to see more of a hostile dynamic between Germany and France, rather than a cooperative one,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.
In the Netherlands, Rutte offered his cabinet’s resignation after losing the support of Geert Wilders’s Freedom Party over a disagreement on budget cuts needed to steer the nation clear of the debt crisis. The country is one of four in the euro region with a top AAA credit rating from Standard & Poor’s.
Dutch 10-year bonds fell, driving the yield difference with benchmark German bunds to a three-year high. U.S. Treasuries gained, pushing 10-year yields down as much as five basis points, or 0.05 percentage point, to 1.91 percent, the lowest since Feb. 28. The S&P 500 Index slid 0.8 percent.
The euro dropped 0.9 percent against nine developed-nation counterparts over the past month, according to Bloomberg Correlation-Weighted Indexes. The yen gained 1.6 percent, and the dollar was little changed.
Factory, Services Gauges
The 17-nation currency stayed weaker after London-based Markit Economics said a euro-area composite index based on a survey of manufacturing and services purchasing managers dropped to 47.4 in April from 49.1 in March. A Bloomberg survey forecast a rise to 49.3. A reading below 50 indicates contraction.
A purchasing-manager index of German manufacturing fell to 46.3 for April, from 48.4 in March. A Bloomberg poll forecast an increase to 49.
The euro may retest a key “psychological” support level of $1.30 per dollar after trying to break it three times this year, Junichi Ishikawa, said an analyst at IG Markets Securities Ltd. in Tokyo, citing technical indicators. Support refers to an area on a price graph where buy orders may be grouped.
Australia’s dollar slid versus most major currencies after a report showed the nation’s producer prices fell last quarter, adding to bets the central bank will cut interest rates. The nation’s producer-price index dropped 0.3 percent in the January-to-March period from the prior quarter, when it gained 0.3 percent, the Bureau of Statistics said. The index was forecast in a Bloomberg News survey to climb 0.4 percent.
Aussie Versus Greenback
The Aussie fell 0.6 percent to $1.0319 and weakened 1 percent to 83.77 yen.
The U.S. dollar gained versus a majority of its most-traded peers on bets that data tomorrow will show the U.S. economy is growing, reducing chances the Federal Reserve will expand monetary easing. The government may say new-home purchases rose 1.6 percent in March, a Bloomberg survey showed.
The Fed will release a statement on April 25 on monetary policy. All 79 economists surveyed by Bloomberg predict the central bank will keep its key rate at zero to 0.25 percent.
John Taylor, founder of currency hedge fund FX Concepts LLC, said the dollar will strengthen against the euro this quarter as the French election raises concern about stability in the 17-nation region.
“Europe’s going to be in a recession, and they’re going to have to print more money and be looser, and the U.S. is going to have a stronger economy than them by quite a bit,” Taylor said April 20 in a telephone interview.
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