The euro was poised for its biggest five-day drop in seven months after European Central Bank President Mario Draghi said recent currency gains may slow inflation and growth, damping demand for the region’s assets.
The 17-nation currency traded 0.3 percent from a two-week low against the greenback as European Union leaders meet in Brussels to seek agreement on the 2014-2020 budget. Australia’s dollar erased earlier declines after data showed exports and imports in China, the South Pacific nation’s largest trading partner, rose more than economists forecast. The yen is poised for an unprecedented 13th weekly decline versus the greenback as Japan posted back-to-back monthly current account deficits for the first time since at least 1985.
“The risks of a rising currency to economic growth in the region is something that the market has taken note of, and the ECB delivered a stark reminder that their policy will remain accommodative,” said Jim Vrondas, the chief currency and payments strategist for the Asia-Pacific region at OzForex Ltd. in Sydney. “Their actions should continue to serve to weaken the euro.”
The euro traded at $1.3407 as of 11:33 a.m. in Tokyo, set for a 1.7 percent weekly drop, the steepest since July. It yesterday touched $1.3371, the least since Jan. 25. The currency fetched 125.43 yen from 125.44 in New York, sliding 0.9 percent since Feb. 1, its first five-day drop in nine weeks.
The yen added 0.1 percent to 93.53 per dollar, on course for a 0.8 percent decline this week.
Europe’s shared currency has strengthened 2.3 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.5 percent and the yen tumbled 7.6 percent.
There are downside risks to inflation “stemming from weaker economic activity and, more recently, the appreciation of the euro exchange rate,” according to a statement of remarks from Draghi yesterday placed on the ECB’s website.
The central bank kept its benchmark rate at a record-low 0.75 percent as forecast by economists in a Bloomberg News survey.
A promised EU investment budget to modernize the recession- hit economy is set to be scaled back amid competing national demands. A summit deadlock over the 2014-2020 budget would hobble subsidy programs, force the EU to fall back to annual budget extensions and add to concerns about Europe’s political cohesion.
The yen traded 0.6 percent from its lowest since May 2010 versus the dollar as the Ministry of Finance reported a 264.1 billion yen ($2.8 billion) shortfall for December in the widest measure of the nation’s trade, compared with a forecast for a deficit of 144.2 billion yen.
“Japan’s large current account surplus was the only remaining factor pushing the yen stronger,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s largest lender. “Now that support has given way, and the yen is inevitably selling off.”
Australia’s dollar is poised to drop for a fourth-straight week against the U.S. currency as the RBA predicted “below trend” 2013 growth. Consumer prices will rise 3 percent in the year to June 2013, compared with the 3.25 percent increase it had forecast three months earlier, the central bank said.
Daily declines in the Aussie were erased after China’s customs administration said exports rose 25 percent in January from a year earlier while imports increased 28.8 percent, exceeding economist estimates.
The so-called Aussie added 0.1 percent to $1.0292, after falling as much as 0.3 percent earlier. It is still poised for a 1.1 percent decline this week.
Currency volatility will probably increase this year as volumes climb, Citigroup Inc. said, citing trading platform and central bank figures.
Combined average daily volume on currency trading platforms by CME Group Inc., Thomson Reuters Corp. and ICAP Plc was at $381 billion last month, up from $290 billion in December and $339 billion a year earlier, according to data compiled by Greg Anderson, Citigroup’s North American head of Group-of-10 currency in New York.
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