The euro fell against the dollar and yen for the first time in four weeks after the European Central Bank lowered its economic forecast for the region and policy makers discussed trimming benchmark interest rates.
The 17-nation currency had the biggest one-day decline in a month on Dec. 6 as the central bank joined Germany’s Bundesbank in scaling back growth projections. The dollar weakened against higher-yielding currencies after the nation’s employment rate unexpectedly fell to an almost four-year low. The Federal Reserve meets next week when the central bank if forecast to increase its asset purchases.
“Lowering interest rates is just plain negative for a currency,’ Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York said Dec. 7. “With the ECB’s downward revisions to inflation, it’s going to be below the 2 percent target and in that case it’s pretty likely that they would lower rates.”
The shared currency fell 0.5 percent to $1.2927 in New York for the first weekly loss since Nov. 9. It touched $1.2877 on Dec. 7, the weakest since Nov. 23. The euro declined 0.4 percent to 106.67, reaching 106.12 yen yesterday, the lowest in more than a week. The yen was little changed versus the dollar at 82.49.
The euro has lost 2.5 percent this year, the second-worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slid 9.5 percent and the dollar fell 2.2 percent.
Futures traders cut bets that the euro will decline against the dollar to the least since September 2011, figures from the Commodity Futures Trading Commission show. Net shorts were 32,795 on Dec. 4, compared with net shorts of 66,693 a week earlier.
Net long positions in the Australian dollar totaled a record 92,229, while net-short yen positions against the dollar reached 90,326, the most since July 2007, the data show.
New Zealand’s dollar rose to a two-month high against the greenback of Dec. 6 after the Reserve Bank of New Zealand said economic growth was likely to quicken.
“The overall outlook is for stronger domestic demand and the elimination of current excess capacity by the end of next year,” central bank Governor Graeme Wheeler said in Wellington on Dec. 6. “This is expected to cause inflation to rise gradually toward the 2 percent target midpoint.”
It rose 1.5 percent to 83.24 U.S. cents in its biggest weekly advance since Sept. 14.
The Swiss franc fell against all its major counterparts as Credit Suisse Group AG said in a notice distributed to bank clients Dec. 3 that it will communicate the currencies involved in its plan to charge negative interest rates on cash balances, plus the thresholds and rates on an individual basis to those customers during the next five business days.
The franc declined 0.2 percent to 1.2075 per euro after depreciating to the weakest since Sept. 18.
The Swiss central bank’s foreign-currency reserves fell for a second month in November after pressure to defend the 1.20 on the franc per euro eased.
The ECB held its benchmark at a record low of 0.75 percent and kept the deposit rate at zero. A majority of ECB policy makers were open to cutting the benchmark rate yesterday and there is a possibility of a reduction early next year, three officials with knowledge of the Governing Council’s deliberations said.
The central bank lowered its inflation forecast for next year to 1.6 percent from 1.9 percent. The euro fell as much as 0.9 percent on Dec. 6, its largest daily decline since Nov. 7.
“The market hears what it perceives to be as hints as to the way policy may be moving in the future, so it’s understandable that the market is going to respond in the way it has been in weakening the euro,” Robert Lynch, head of currency strategy for HSBC Holdings Plc in New York, said in a Bloomberg Television interview with Sara Eisen on Dec. 6.
The Frankfurt-based Bundesbank also cut its growth projection for 2013 to 0.4 percent from the 1.6 percent predicted in June and said the economy.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, rose 0.3 percent to 80.412, for its first gain in three weeks. It touched 80.658 on Dec. 7, the strongest since Nov. 23.
The dollar weakened versus higher-yielding currencies such as the Canadian dollar and Mexican peso as U.S. employment climbed by 146,000 Labor Department figures showed. The median estimate of 91 economists surveyed by Bloomberg called for a gain of 85,000.
The Canadian dollar added 0.6 percent to 98.84 cents per U.S. dollar. Mexico’s peso advanced 0.9 percent to 12.8505.
The Fed is working to boost the economy and reduce unemployment by continuing purchases of housing debt that have helped drive borrowing costs to an all-time low. The policy- setting Federal Open Market Committee’s last meeting of this year is scheduled for Dec. 11-12 in Washington.
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