Euro Falls Below $1.30 as Economic Weakness May Spur ECB Moves

The euro fell below $1.30 for the first time in two months after reports showed the region’s manufacturing contracted in February and unemployment climbed to a record.

The 17-nation currency extended a fourth weekly loss against the greenback, the longest streak since June, as signs the region remains stuck in a recession backed the case for the European Central Bank to cut interest rates. The Dollar Index rose to the highest level since August as the U.S. government’s failure to avoid automatic budget cuts, known as the sequester, spurred investors to seek safer assets. The pound tumbled after a British factory index unexpectedly shrank in February.

“It’s only a matter of time until we gyrate lower,” Peter Gorra, chief dealer in New York at BNP Paribas SA, said of the euro. “It’s hard not to say that there’s something going on in the world that means lower growth and is nervous about the sequester, and what’s going on in Europe.”

The euro fell 0.3 percent to $1.3022 at 5 p.m. in New York, extending this week’s decline to 1.3 percent. It traded as low as $1.2967, the least since Dec. 11. The single currency rose 0.8 percent to 121.87 yen, having depreciated 1.1 percent this week. The dollar strengthened 1.1 percent to 93.59 yen.

Technical Levels

Futures traders are betting the euro will weaken against the dollar, reversing to a net-short position of 9,394 contracts as of Feb. 26, figures from the Washington-based Commodity Futures Trading Commission show. The week before, large speculators held a net-long position of 19,103 contracts.

Wagers that the pound would fall against the dollar rose to 36,130, the most in a year.

A technical measure indicated the euro’s recent decline might turn around. The 14-day relative strength index against the U.S. dollar reached 32, at almost the 30 level that some traders see as sign that an asset may be about to reverse direction.

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against currencies of six U.S. trading partners, gained 0.4 percent to 82.268, after rising to the highest since August.

The gauge may rise to match the highest level since July 2010 after completing a “bullish outside month,” Citigroup Inc. said, citing trading patterns.

Budget Update

Investors have sought the U.S. currency as a haven amid the standoff between Democrats and Republicans over how to replace the cuts totaling $1.2 trillion during nine years, known as the sequester, $85 billion of which would occur in the remaining seven months of this fiscal year.

The euro slid against all but two of its 16 major peers last month, losing 4 percent against the greenback and 3 percent against the yen. The dollar rose 0.9 percent versus the yen, a fifth monthly gain, the longest winning streak since August 2008.

The yen, pound and euro “reflect weak economies,” Pacific Investment Management Co.’s Bill Gross said today in a Twitter message. Newport Beach, California-based Pimco is manager of the world’s biggest bond fund.

“Be leery of horsemeat & currency mispricings,” he wrote. “Buy Mex peso, Brazil real.”

Brazil’s real gained 0.7 percent to the greenback and South Korea’s currency was up 0.5 percent in February, the biggest gainers of the dollar’s 16 most-traded peers, according to data compiled by Bloomberg. The pound lost 4.4 percent, the biggest decline, while Norway’s krone weakened 4.8 percent.

Currency Scorecard

This year, the real has strengthened 3.6 percent as the pound has lost 7.5 percent. Mexico’s peso has gained 0.7 percent to the dollar.

The zloty hit a six-week high against the euro after Poland’s fourth-quarter economic growth rose more than expected, curbing the need for further interest rate cuts.

The Polish currency strengthened 0.3 percent to 4.1378 per euro.

A gauge of manufacturing in the 17-nation euro area was 47.9 in February, London-based Markit Economics said, below the level of 50 that shows contraction. Unemployment in the region climbed to 11.9 percent in January, the highest since the data series started in 1995, the European Union statistics office said.

Economic Weakness

“The overall picture is consistent with a euro-zone economy that is still stuck in recession,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There are downside risks for the euro. The ECB could signal it is closer to further monetary easing next week.”

The pound fell to the lowest level since July 2010 against the dollar as Markit Economics said its manufacturing gauge based on a survey of purchasing managers slid to 47.9, missing analyst estimates for a reading of 51.

“The data was supposed to be good and it came out negative so that has taken the rug out from under sterling’s feet,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “There is an array of negative fundamentals for the U.K., so it’s very difficult to see silver linings. I think sterling will be weak all year.”

The pound slid 0.8 percent to $1.5038 after dropping to the lowest level since July 2010. Sterling weakened 0.6 percent to 86.608 pence per euro.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

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

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