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Euro Falls as German Exports Drop; Pound Drops Before BOE

The euro fell against the dollar as German exports dropped more than economists predicted in June, adding to evidence that Europe’s sovereign-debt crisis is harming the region’s largest economy.

Europe’s common currency also slipped against the yen before a report economists said will show industrial production slid in Germany and as Standard & Poor’s revised the outlook on Greece’s sovereign rating to negative from stable. The pound declined against the dollar amid speculation the Bank of England will cut its inflation forecast after the recession worsened. The yen gained against its 16 major counterparts.

“The bigger picture is what’s driving the euro, and we’ve had no fresh developments there,” Daragh Maher, a currency strategist at HSBC Holdings Plc (HSBA) in London said, referring to efforts to resolve the euro-area turmoil. “There will be a bit more focus on the industrial production data from Germany.”

The 17-nation euro slipped 0.2 percent to $1.2371 at 9:29 a.m. London time. It fell 0.5 percent to 97 yen. The Japanese currency gained 0.3 percent to 78.38 per dollar after declining 0.5 percent yesterday.

German exports fell 1.5 percent from May, when they jumped 4.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 1.3 percent decline, according to the median estimate in a Bloomberg News survey. Factory output slid 0.8 percent in June, according to a separate survey before the data is released today.

Greece Outlook

The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable, S&P said yesterday. The change reflects the risk of a downgrade if Greece is unable to obtain the next disbursement from the European Union and International Monetary Fund rescue package, the ratings company said.

S&P said in a statement today it placed Banco Popular Espanol SA (POP) on CreditWatch with negative implications because Spanish lenders are likely to receive government support to recapitalize and holders of the banks’ hybrids and subordinated debt “will possibly absorb losses.”

Sterling weakened 0.2 percent to $1.5593 and was little changed at 79.34 pence per euro.

The Bank of England will predict inflation to slow further below its 2 percent target than previously anticipated and forecast lower growth this year and next, according to a majority of economists in a Bloomberg News survey. Governor Mervyn King will present the projections at a press conference in London at 10:30 a.m. in London.

Negative Tone

“Inflationary pressures are easing, the economy is weak, bank lending is soft, and the Monetary Policy Committee is dovish,” Kit Juckes, head of foreign-exchange research at Societe Generale SA (GLE) in London, wrote in a client note. “The Inflation Report tone will be negative for sterling.”

The Bank of Japan board will leave unchanged its 45 trillion yen asset-purchase fund and the benchmark rate target between zero and 0.1 percent tomorrow, according to all 22 analysts in a Bloomberg survey.

The central bank may have to resort to buying notes at any price as it tries to flood the financial system with cash injections to boost lending and weaken the yen. The BOJ abandoned its minimum rate for buying treasury discount bills and commercial paper last month. Nine of the 22 analysts surveyed expect the yield floor may be scrapped for longer-term securities as early as tomorrow.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net

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

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