Euro Declines as Services, Manufacturing Contract; Yen Gains

The euro fell to a two-week low against the dollar as a report showed services and manufacturing in the region shrank for a 15th month, adding to speculation the European Central Bank will cut interest rates to spur growth.

The single currency dropped against 12 of its 16 major counterparts as a German factory index unexpectedly declined after the Bundesbank said yesterday the nation’s recovery may be delayed. The yen and the dollar strengthened after an industry report showed Chinese manufacturing expanded at a slower pace, boosting demand for safer assets. Sweden’s krona dropped after the nation’s unemployment rate unexpectedly increased.

“The overall picture is pretty bleak,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “The likelihood of the ECB cutting interest rates increased today. All in all, it’s negative for the euro.”

The euro declined 0.6 percent to $1.2995 at 7:26 a.m. New York time after sliding to $1.2973, the weakest level since April 8. The 17-nation currency dropped 1.1 percent to 128.25 yen after falling 0.2 percent yesterday. Japan’s currency advanced 0.6 percent to 98.67 per dollar.

A euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries was 46.5 in April, below the level of 50 that separates contraction from expansion, London-based Markit Economics said. A gauge of German factory output dropped to 47.9 from 49, Markit said, while economists surveyed by Bloomberg forecast no change.

ECB Rates

The ECB may cut borrowing costs if data show a need for it, Executive Board Member Joerg Asmussen said April 20 on a panel in Washington. ECB President Mario Draghi said the previous day the economic situation in the euro area hasn’t improved since the central bank’s last policy meeting on April 4. The ECB’s benchmark rate is currently at 0.75 percent.

The euro has still strengthened 1.8 percent this year, according to Bloomberg correlation-Weighted Indexes that track 10 developed-nation currencies. The yen slumped 10 percent and the dollar gained 3.5 percent.

The yen advanced at least 0.5 percent today against all 16 of its major counterparts, rising 1.7 percent against Sweden’s krona and 1.6 percent versus the Norwegian krone.

China’s Purchasing Managers’ Index fell to 50.5 in April according to a preliminary reading released by HSBC Holdings Plc and Markit Economics said, compared with a final figure of 51.6 for March. A level above 50 indicates expansion.

Krona Drops

The krona dropped to a four-month low against the dollar after Statistics Sweden said the seasonally adjusted unemployment rate climbed to 8.4 percent in March from 8.2 percent the previous month. The median estimate of economists surveyed by Bloomberg was for the rate to stay unchanged.

Sweden’s central bank last week delayed the timing of its next interest-rate increase by about a year to late 2014, citing a strengthening krona and inability of companies to raise prices because of weak demand.

The krona declined 1.2 percent to 6.6081 per dollar after depreciating to 6.6225, the weakest level since Dec. 18. The currency slipped 0.6 percent to 8.5868 per euro.

The pound dropped to a two-week low against the dollar after a U.K. factory index unexpectedly fell this month to the lowest since October 2010.

The U.K. currency declined versus most of its 16 major counterparts even as a separate report showed Britain’s budget deficit narrowed more than economists forecast in March.

‘Bigger Picture’

The data today “doesn’t change the bigger picture of the country’s economic outlook which is weak,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “The pound is likely to remain under pressure and we see any rebound as an opportunity to sell.”

The pound weakened 0.3 percent to $1.5249 after sliding to $1.5197, the lowest level since April 4.

Thailand’s baht dropped the most since July against the dollar based on closing prices on speculation the central bank will intervene to slow gains that may hurt exports.

The baht has started to move beyond its fundamentals, central bank Governor Prasarn Trairatvorakul said April 19, while Assistant Governor Paiboon Kittisrikangwan said yesterday the currency has risen “too much and too quickly.”

The baht weakened 0.4 percent to 28.81 per dollar, the biggest decline since July 6.

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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