Euro Falls on Debt-Slowed Economy; Yen Weakens

The euro fell against most major currencies after a survey showed German investor sentiment stayed negative this month as the region’s economy struggles amid the debt crisis.

The yen declined against the greenback after gaining earlier after a Nikkei report speculated the Bank of Japan (8301) could take steps to weaken the currency as soon as tomorrow. The euro weakened from four-month highs versus the dollar and yen amid concern Spain will delay seeking a bailout after the European Central Bank pledged to buy bonds. The Dollar Index rose for a second day, strengthening from a six-month low reached Sept. 14 after the Federal Reserve began its third round of monetary stimulus.

“The market got a little bit ahead of itself with the one- two punch from the ECB and the Fed in the last two weeks,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. (BK) “It really hasn’t changed the fundamental outlook for recession in Europe and weak growth in the U.S.”

The 17-nation euro dropped 0.5 percent to $1.3048 at 5 p.m. in New York after appreciating to $1.3172 yesterday, the strongest level since May 4. The common currency declined 0.4 percent to 102.84 yen. It rose to 103.86 yesterday, the highest since May 9. The yen weakened 0.1 percent 78.82 per dollar, its third straight decline.

Further Weakening

The euro may continue to weaken against the dollar as the pair’s 14-day relative strength index remained above the level of 70 that some traders see as a sign an asset is overvalued and may be poised to reverse direction. It was at 72.1 today.

The shared currency has appreciated 3.3 percent during the past month, the best performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, amid optimism the ECB will halt the spread of the financial crisis. The single currency has weakened 4.3 percent during the past 12 months.

The yen fell versus the majority of its 16 major counterparts after a Nikkei report said the BOJ may take action at its meeting today. The bank is expected to weaken its view on exports, according to Nikkei, without citing anyone.

A escalating territorial dispute with China helped the Japanese currency appreciate earlier. Japanese retailers shuttered stores in China after protesters of Japan’s purchase of uninhabited, disputed islands last week smashed store fronts and overturned cars. The yen traditionally gains in times of economic uncertainty due to the nation’s position as a net- creditor.

Central Bank

Japan’s central bank started a two-day policy meeting where five of 21 economists surveyed by Bloomberg predict policy makers will announce further monetary easing tomorrow.

“If tensions continue to rise, you could see a further flight out of emerging-market currencies, and perhaps the dollar and yen would rise together against other major global currencies,” John Brady, managing director of global futures and options at futures broker R.J. O’Brien & Associates in Chicago, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman and Stephanie Ruhle. “I would suggest that anything above 73 or 74 will be extremely painful and that will probably hasten the BOJ to do something, but probably not today or tomorrow.”

The BOJ increased the size of a fund to buy assets such as government debt by 5 trillion yen ($60 billion) to 45 trillion yen in July, and has kept its target for overnight lending between zero and 0.1 percent since October 2010.

Rand Rally

South Africa’s rand gained the most among its major counterparts as talks between platinum miners and striking workers boosted confidence in an industry that is the country’s biggest foreign-currency earner.

The rand appreciated 1 percent to 8.1794 per dollar after earlier rising 1.3 percent. The currency gained 1.6 percent to 10.6737 per euro after climbing 1.7 percent, its biggest increase since April 17.

The Dollar Index (DXY) rose for a second day, gaining 0.2 percent to 79.183. The gauge, which is weighted 57.6 percent to movements in the euro, tracks the dollar against six major currencies.

The index is in a corrective stage after bouncing off support levels in the 78.40 to 78.60 area, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote today in a note to clients. The gauge should increase until it reaches resistance at 79.65 to 80.15, according to O’Connor. The index’s ability to break the area from 81 to 81.10 will determine if the appreciation is further sustainable, he said.

Spain’s Debt

Spanish borrowing costs declined at a bill sale today, its first auction since the European Central Bank on Sept. 6 announced a plan to buy the region’s government debt to contain borrowing costs.

“If the ECB is promising to support their bond markets, do they need support?” Alan Ruskin, global head of G-10 foreign- exchange strategy at Deutsche Bank AG, said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene. “At some point in time the market will push Spain to ask for help, and the ECB will support the Spanish bond market. We could possibly still need for Spanish yields to back up a little bit.”

Spain will consider seeking a bailout if the conditions imposed are acceptable, Deputy Prime Minister Soraya Saenz de Santamaria said, the strongest signal from the government that it’s positioning to reach for the financial lifeline.

Germany’s ZEW Center for European Economic Research said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 18.2 from minus 25.5 in August. The gauge of the current situation fell to 12.6, the lowest since June 2010.

Economic growth in Germany will slow to 0.8 percent for 2012 from 3 percent last year, the Kiel-based Institute for the World Economy said on Sept. 13.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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