Euro Drops as Slowing Growth and Elections Damp Demand

The euro slid versus the dollar by the most in almost a month and reached an 11-week low against the yen after further slowing in the region’s economies and before national elections that may result in leadership changes.

The yen rose versus all of its 16 most-traded peers, gaining for a second week versus the greenback, as a smaller- than-forecast payrolls gain in the U.S. and recessions in the U.K. and Spain increased demand for haven assets. New Zealand’s dollar dropped the most among major currencies as the nation’s unemployment rate unexpectedly climbed.

“There’s mounting signs of sluggish global growth, and as a result we’re seeing a lot of these growth currencies suffer the biggest losses this week,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “If we continue to see political uncertainties in Europe linger, that’s something that could cap the euro’s upside.”

The euro dropped 1.3 percent to $1.3084 yesterday in New York, from $1.3255 a week earlier. It was the biggest loss since the five days ended April 6. The 17-nation currency fell 1.8 percent to 104.49 yen and reached 104.40, the weakest level since Feb. 17. Japan’s currency gained 0.5 percent to 79.85 per dollar. It touched 79.64 yen, the strongest since Feb. 21.

Stocks and commodities dropped as risk appetite shrank. The MSCI World Index declined 2.6 percent, and crude oil for June delivery plunged 6.1 percent to $98.49 a barrel, dropping below $100 for the first time since Feb. 13.

The New Zealand and Australian dollars were the biggest losers among major currencies.

Kiwi Tumbles

New Zealand’s dollar, known as the kiwi, dropped after the unemployment rate rose to 6.7 percent in the first quarter. The kiwi tumbled 3.3 percent to 79.55 U.S. cents and touched 79.38 yesterday, the lowest since Jan. 17.

The Aussie dollar weakened the most since September against the yen after the Reserve Bank of Australia lowered its overnight cash rate target to 3.75 percent from 4.25 percent, the deepest cut in three years. The Aussie fell 3.3 percent to 81.31 yen in the biggest weekly loss since the five days ended Sept. 23. It depreciated 2.8 percent to $1.0182.

Futures traders bet on the U.S. dollar to rise versus its major peers for the first time since April 3. The difference in the number of wagers by hedge funds and other large speculators on a rise in the dollar versus those on a loss -- so-called net longs -- was 17,592 May 1, compared with net shorts of 38,416 a week earlier, Commodity Futures Trading Commission data showed.

U.S. Employment

The yen climbed yesterday as government data showed U.S. nonfarm payrolls added 115,000 jobs, after a revised increase of 154,000 in March. The median forecast in a Bloomberg News survey was for 160,000. The unemployment rate fell to 8.1 percent, from 8.2 percent.

“The headline employment report wasn’t great, but I don’t think it’s going to change the foreign-exchange market’s very narrow ranges,” said Alan Ruskin, global head of Group-of-10 currency strategy at Deutsche Bank AG in New York. “It does seem like the U.S. economy slowed down a bit from the winter, but it’s not to the point where it’s necessarily going to change key variables like whether the Fed is going to change policies.”

Federal Reserve Chairman Ben S. Bernanke said last week the central bank is “prepared to do more” if necessary to boost the economy. He spoke at a press conference after his Federal Open Market Committee refrained at a two-day meeting from new stimulus moves and said in a statement the economy has been expanding moderately.

Quantitative Easing

The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to try to stimulate economic growth by lowering borrowing costs. The Dollar Index fell 14 percent during that period amid concern the effort was debasing the dollar.

The euro weakened versus the yen and dollar as a final composite index for the region based on a survey of purchasing managers in services and manufacturing dropped to 46.7 in April from 49.1 in March, London-based Markit Economics said yesterday. It trailed an initial estimate of 47.4 on April 23. A reading below 50 indicates contraction.

Spain’s gross domestic product fell 0.3 percent in the first quarter, the same as in the previous three months, marking the nation’s second recession since 2009, the Madrid-based National Statistics Institute said on April 30. Data last week showed Britain’s economy re-entered a recession last quarter.

‘More Uncertain’

While the European Central Bank still expects a gradual economic recovery this year, the outlook has become “more uncertain,” President Mario Draghi said this week. The ECB kept its main refinancing rate at a record low 1 percent this week.

France and Greece hold elections this weekend, spurring bets that efforts to resolve Europe’s debt crisis may falter. French voters cast ballots in the final round of the country’s presidential race, and Greeks will decide on a new parliament.

“There’s so many political events going through the weekend and into next week that it’s keeping people nervous about being long euros,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. Long positions are bets a currency or security will gain.

Francois Hollande, the Socialist challenger who is leading French President Nicolas Sarkozy in opinion polls, has called for a re-negotiation of the budget pact crafted by European leaders in March, saying it needs more emphasis on growth.

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.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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