Euro Pares Monthly Gain as Spanish Jobs, German Confidence Drop

The euro fell versus the dollar, paring a third monthly gain, as reports showed Spanish unemployment climbed to a record and German business confidence unexpectedly fell amid Europe’s three-year-old debt crisis.

The yen declined versus the greenback for a second week on speculation the Bank of Japan (8301) will expand monetary stimulus at a policy meeting Oct. 30. Europe’s 17-nation currency dropped versus most major peers as data showed services and manufacturing in the euro region contracted in October more than economists predicted. The U.S. unemployment rate rose in October, a Labor Department report next week may show.

“The data was not terribly supportive of the euro this week,” Charles St-Arnaud, a New York-based economist and foreign-exchange strategist at Nomura Holdings Inc., said yesterday in a telephone interview. “Risk sentiment was kind of more sideways. There was nothing really that would’ve supported the euro.”

The euro dropped 0.7 percent to $1.2938 this week in New York, trimming its gain for October to 0.6 percent, which would be the least since March. The single currency weakened 0.2 percent to 103.05 yen, paring a monthly gain to 2.8 percent. Japan’s currency fell 0.4 percent to 79.65 per dollar, losing for two consecutive weeks for the first time since March.

Net Shorts

Futures traders increased their bets the euro will fall against the dollar, Commodity Futures Trading Commission data showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 55,219 on Oct. 23. That compared with 53,495 a week earlier. Net shorts reached a record 214,418 on June 8.

New Zealand’s dollar, nicknamed the kiwi, was the biggest winner among its 16 most-traded peers, climbing 0.9 percent to 82.29 U.S. cents. The Norwegian krone was the worst performer, sliding 2 percent to 5.7729 per dollar.

The euro has lost 2.2 percent this year versus nine developed-nation peers, according to the Bloomberg Correlation- Weighted Indexes. The yen is the biggest loser, dropping 5.7 percent. The greenback has fallen 2 percent, while New Zealand’s dollar is the best performer, rising 4.5 percent.

The shared currency fell as an index of German business climate dropped this month, the Ifo institute in Munich said. The gauge fell to 100, from 101.4 in September. A Bloomberg News survey forecast an increase to 101.6.

‘Surprising’ Data

“For the German Ifo, the current assessment was weaker and expectations did not rise, which might’ve been a bit surprising,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in an Oct. 24 telephone interview. “That’s one of the things leading to weakness in the euro.”

Spain’s unemployment rate rose to 25.02 percent in the third quarter, from 24.6 percent in the previous period, the National Statistics Institute said yesterday in Madrid.

A composite index of euro-area manufacturing and services industries unexpectedly declined to 45.8 in October, from 46.1 in September, London-based Markit Economics said. Economists in a Bloomberg survey forecast an increase to 46.5. A number below 50 indicates contraction.

The yen slid to a four-month low versus the dollar on speculation the Bank of Japan will expand monetary stimulus next week. The Nikkei newspaper reported the central bank may increase its asset-purchase target by 10 trillion yen ($125 billion) to 90 trillion yen.

Stimulus speculation was fueled by a report that showed Japanese exports fell 10 percent last month, the most since the 2011 earthquake.

‘Fairly Soon’

“The deterioration in the export figures caught the market’s attention and pretty much accelerated the expectation that the central bank may do something fairly soon,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said Oct. 22 in a phone interview.

The Canadian dollar depreciated versus the greenback for a third week, the longest since June, amid debate on the central bank’s interest-rate stance and on concern demand for the country’s natural resources will decline as investors question global-growth prospects.

The loonie, as the currency is known for the aquatic bird on the C$1 coin, weakened 0.3 percent to 99.69 cents per U.S. dollar. One Canadian dollar buys $1.0031.

‘Less Imminent’

Bank of Canada Governor Mark Carney said Oct. 24 the need for higher interest rates has become “less imminent,” a day after strengthening the case for tightening monetary policy. Carney told reporters in Ottawa that over time rates are more likely to go up than not. He didn’t elaborate on timing. The bank has kept its key rate at 1 percent since September 2010.

“Carney’s statements that a rate increase is ‘less imminent’ pushed dollar-Canada into unwinding,” Jack Spitz, managing director of foreign exchange at National Bank of Canada (NA) in Toronto, said in an Oct. 24 telephone interview. “We’re back and forth now trying to discount when the next rate hike is going to be.”

Futures on crude oil, Canada’s biggest export, tumbled 4.2 percent this week, the biggest drop in a month, to $86.28 a barrel in New York.

The greenback gained versus the euro as the Federal Reserve maintained asset-purchase programs without suggesting it’s closer to boosting stimulus, reducing concern additional measures will debase the currency.

The Fed said in a statement after a two-day policy meeting ended Oct. 24 that the U.S. economy is still growing modestly and unemployment remains elevated. The central bank maintained a pledge to hold the key interest rate at virtually zero until at least mid-2015.

‘Clear Message’

“It’s still a strong-dollar environment,” David Mann, regional head of research for the Americas at Standard Chartered in New York, said that day in a phone interview. “It was a clear message of steady as she goes. There have been some better numbers, and none of that is wavering their determination to follow through on QE3.”

The Dollar Index, which measures the currency against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, increased 0.5 percent to 80 and touched 80.27, the highest level since Sept. 11.

The U.S. unemployment rate rose to 7.9 percent this month, from 7.8 percent in September, economists in a Bloomberg survey forecast before the Labor Department’s employment report on Nov. 2, four days before the presidential election. Employers added 125,000 jobs, another survey projected, after increasing payrolls in September by 114,000.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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