Euro Touches Six-Week Low as ECB Bank Repayments Miss Forecast

The euro touched the lowest level against the dollar in six weeks after the European Central Bank said institutions will repay less of Long-Term Refinancing Operation borrowing next week than economists forecast.

The 17-nation currency trimmed gains versus the yen as the European Commission forecast the region’s economy will shrink for a second year in 2013. The Australian dollar rose the most in seven weeks after central bank Governor Glenn Stevens said the bar for intervention was high. Japan’s currency weakened amid a White House meeting between Prime Minister Shinzo Abe and President Barack Obama, who made no mention of the yen during remarks after the discussion.

“The market is trading on confidence and sentiment, and the LTRO news shows that tail risk has shrunk less than we thought,” Greg Anderson, New York-based head of Group of 10 currency strategy at Citigroup Inc., said in a telephone interview. “What we’ve seen this week is the last of the euro longs getting squeezed out.” A long position is a bet that an asset will rise.

The euro fell was little changed at $1.3194 at 5 p.m. in New York after touching $1.3145, the lowest level since Jan. 10. The shared currency declined 1.2 percent this week. It rose 0.3 percent 123.22 yen today after strengthening as much as 0.8 percent. The yen weakened 0.3 percent to 93.42 per dollar.

The euro may depreciate to the 2013 low of $1.2998 it reached on Jan. 4 if it declines past a support level at $1.3151, Cilline Bain, a London-based technical analyst at Credit Suisse, wrote today in a client note. Support is an area on a chart where buy orders may be clustered.

Aussie Gains

The Australian dollar rose at least 0.2 percent against all of its 16 major counterparts after Stevens said he’d need to be confident the currency was “seriously overvalued” before considering intervention to weaken it.

“Stevens’s comments are very firmly focused on what a strong currency means for inflation, rather than including any threat of action,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. “The tone of his prepared comments indicates no great urgency to cut rates.”

The Aussie jumped as much as 0.9 percent, the biggest gain since Jan. 2, before trading up 0.7 percent at $1.0320.

India’s rupee gained against most of its major peers on optimism slowing inflation and prospects of an economic revival will attract capital flows. The currency rebounded from a one- month low as Brown Brothers Harriman & Co. said investors should consider purchasing the rupee as India’s economic fundamentals are improving.

The rupee appreciated 0.5 percent to 54.1850 per dollar after rising 0.6 percent, its biggest gain since Jan. 30.

Loonie Dives

The Canadian dollar weakened versus all but two of its 16 most-traded counterparts as retail sales slid 2.1 percent to C$38.6 billion ($37.9 billion), bringing the value of retailer receipts to the lowest since September 2011. The nation’s inflation rate reached its lowest in more than three years.

“It’s a hugely disappointing number at a sensitive time of year for retailers,” Adam Button, a Montreal-based currency analyst at Forexlive.com, said by phone from New York of the retail data. “The market was soft in the Canadian dollar coming into this, and this number is certainly going to keep the momentum going.”

The so-called loonie fell 0.3 percent to C$1.0215 per U.S. dollar after earlier weakening to C$1.0256, its lowest level since June 29. The currency dropped for a sixth day in its longest losing streak since August 2011.

German Confidence

The common currency declined as the ECB said 356 banks will hand back 61.1 billion euros ($80.5 billion) on Feb. 27, the first opportunity for early repayment of the second LTRO. The median forecast in a Bloomberg News survey was for 122.5 billion euros.

The region’s gross domestic product will contract 0.3 percent in 2013, compared with a November prediction of 0.1 percent growth, the Brussels-based commission said.

The euro rose earlier after the Germany’s Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, climbed to 107.4 from 104.3 in January. That’s the fourth straight gain. Economists predicted an increase to 104.9, according to a Bloomberg News survey.

“Given the more positive sentiment over the past couple of months in financial markets, the stronger German Ifo today is perhaps not that surprising,” said Kiran Kowshik, a foreign- exchange strategist at BNP Paribas SA in London. “We established a buy-euro recommendation yesterday.”

The meeting between Abe and Obama in Washington followed a Group of 20 summit in Moscow that ended Feb. 16 with finance ministers and central bankers signaling support for Japanese stimulus as long as Abe’s ministers cease public advocation of a weaker currency.

The yen tumbled 12 percent in the past three months, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.6 percent, and the euro rose 3.3 percent.

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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