Euro Set for Biggest Weekly Decline in a Month

The euro weakened for a fifth day against the dollar after a European report showed the region’s manufacturing and services industries shrank in April more than economists predicted.

The 17-nation currency extended its daily losing streak to the longest since September as France and Greece prepared to hold elections this weekend, creating uncertainty about the two nations’ commitment to austerity measures. The dollar strengthened against most of its major counterparts before a U.S. report that economists said will show employers stepped up hiring last month.

“If it’s going to go in any one direction, it’s going to be to the south,” Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London, said of the euro. “We are in all likelihood going to see a Greek government, and potentially a French president, talk more openly about a move away from this fiscal compact.”

The euro fell 0.2 percent to $1.3133 at 7:11 a.m. New York time having declined 0.9 percent this week. The shared currency dropped 0.1 percent to 105.35 yen and weakened 0.2 percent to 81.12 U.K. pence, after sliding to a 22-month low of 81.03 yesterday. The dollar was little changed at 80.21 yen.

A euro-area composite index based on a survey of purchasing managers in services and manufacturing dropped to 46.7 from 49.1 in March, London-based Markit Economics said. That’s below an initial estimate of 47.4 on April 23. A reading below 50 indicates contraction.

The euro “could easily challenge the $1.30 levels,” should it weaken below $1.3075, Bank of New York’s Mellor said.

France, Greece

France and Greece will hold elections on May 6, with French voters casting ballots in the final round of the country’s presidential race and Greeks set to decide on a new parliament.

Francois Hollande, the Socialist challenger for the French presidency who is leading incumbent Nicolas Sarkozy in opinion polls, has called for a re-negotiation of the budget pact crafted by European leaders in March, saying it needs to place more emphasis on growth. He has rejected Sarkozy’s plan to increase sales tax to fund a cut in payroll charges.

In Greece, neither of two major political parties that have supported the nation’s international bailouts -- New Democracy and Socialist Pasok -- is likely to win an outright majority.

The French and Greek votes “add to the uncertainty” in the euro area, said Kurt Magnus, executive director of foreign- exchange sales in Sydney at Nomura Holdings Inc.

The euro has slumped 3.9 percent over the past six months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.5 percent, and the yen fell 1.3 percent.

Dollar Rises

The dollar rose the most against the Swedish krona and Norwegian krone before the Labor Department releases its non- farm payrolls figures today.

U.S. employers added 160,000 jobs last month after a 120,000 increase in March, according to the median estimate of economists surveyed by Bloomberg News. The jobless rate held at a three-year low of 8.2 percent, economists predict.

“It’s a battle between U.S. dollar weakness and euro weakness, which is the reason the euro is so stuck,” Nomura’s Magnus said. The payrolls figure may be around 200,000, and that would help drive up the Dollar Index (DXY) to about 79.8, he said.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.1 percent to 79.28, having risen 0.7 percent this week.

Volatility Declines

Implied volatility for three-month options on the euro versus the dollar dropped 0.8 percent to 9.6725 percent. It fell to 9.47 percent on April 27, the lowest since August 2008. Implied volatility, which traders quote and use to set option prices, signals the expected pace of currency swings.

The euro may extend gains versus the New Zealand dollar after rising above the March high of NZ$1.6399 yesterday, according to JPMorgan Chase & Co.

“The break of the NZ$1.64 resistance area and March high suggests a deeper corrective phase is underway” for New Zealand’s currency, Niall O’Connor, a technical analyst in New York at JPMorgan, wrote in a research note.

The focus now is the NZ$1.6560-1.6570 range that includes the 38.2 percent retracement of the New Zealand’s dollar drop from November to February, O’Connor wrote, citing Fibonacci theory. Fibonacci analysis is based on the theory prices rise or fall by certain percentages after reaching a new high or low.

The euro was little changed today at NZ$1.6429.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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