Euro Drops to Weakest Since April on Outlook for ECB; Rand Gains

The euro slid to a three-month low against the dollar after an official at the European Central Bank signaled it may remain accommodative for more than a year, further diverging from policy in the U.S.

Europe’s shared currency stayed lower even after the ECB, in an e-mailed statement, said Executive-Board Member Joerg Asmussen didn’t intend to give guidance on rates for an exact period. Federal Reserve Chairman Ben S. Bernanke speaks tomorrow on economic policy amid bets he’ll soon begin reducing monetary stimulus. South Africa’s rand climbed as risk appetite rose.

“There are some dovish comments from ECB member Asmussen,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. ECB President Mario “Draghi reiterated the ECB’s accommodative stance yesterday and easy policy from the bank should keep the euro under pressure,” Viloria said.

Europe’s 17-nation currency fell 0.7 percent to $1.2781 at 5 p.m. New York time and touched $1.2755, the lowest since April 4. The euro lost 0.5 percent to 129.28 yen, while the Japanese currency fell 0.2 percent to 101.15 per dollar.

Reuters reported that Asmussen said the ECB’s forward guidance, which is that interest rates will stay low for an extended period, goes beyond 12 months. Draghi made an unprecedented pledge last week after an ECB policy meeting to keep the bank’s monetary policy stance accommodative for as long as needed to spur economic growth. The key interest rate is a record-low 0.5 percent. The ECB wanted to provide forward guidance in a more explicit way than it did in the past, Draghi told reporters.

Italy’s Rating

The shared currency briefly extended losses as Standard & Poor’s cut Italy’s long-term credit rating to BBB, two levels above junk, from BBB+, citing “the effects of further weakening growth.”

Stocks rose around the world as investors sought higher-yielding assets after Alcoa Inc. started the U.S. earnings season yesterday with results that beat analysts’ estimates. The Standard & Poor’s 500 Index advanced 0.7 percent.

South Africa’s currency gained for a second day after an illegal strike at a platinum company in the nation ended. The rand rallied 1.4 percent to 10.0240 per dollar.

New Zealand’s dollar strengthened 0.7 percent to 78.51 U.S. cents after reaching a one-year low of 76.84 cents on June 24.

An equally weighted basket of seven commodity currencies rose to the highest since June 10 against the yen. The basket comprised the Chilean peso, Australian dollar, Brazilian real, New Zealand currency, Canadian dollar, Norwegian krone and the rand. Commodity currencies are those of countries that benefit from exporting raw materials.

‘Risk-On’

“The commodity currencies are outperforming,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “It’s more risk-on, for sure.”

JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency-option premiums, fell to 10.58 percent in the fourth-straight daily decline, the longest stretch since April.

Sterling slid to a three-year low against the dollar after the Office for National Statistics said U.K. factory production fell 0.8 percent from April, when it declined 0.2 percent. The median forecast of 25 economists in a Bloomberg News survey was a 0.4 percent increase.

Stomach Punch

“We’ve had some fairly robust data recently, so for this to be negative is a little bit of a punch in the stomach for the pound,” said Lee McDarby, head of dealing on the corporate and institutional treasury desk at Investec Bank Plc in London. “It’s not looking particularly great for sterling right now.”

The pound dropped as much as 0.9 percent to $1.4814, the lowest since June 2010, before trading at $1.4867, down 0.6 percent. The U.K. currency rose 0.1 percent to 85.97 pence per euro after touching 86.69 pence, the weakest since March 14.

Bank of Japan Governor Haruhiko Kuroda and his fellow policy makers will discuss at a policy meeting this week upgrading their assessment of Japan’s economy by using the word “recover” for the first time in more than two years, people familiar with the central bank’s discussions said.

Norddeutsche Landesbank, Macquarie Bank Ltd. and Banco Santander SA are calling for the yen to tumble to 110 per dollar by year-end. The lenders are among the five top-ranked forecasters for the currency last quarter, according to data compiled by Bloomberg. The median estimate of economists in a Bloomberg survey calls for 105 by Dec. 31.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $36 billion, compared with $29 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $7.8 billion, the largest share of trades at 22 percent. Dollar-yen options totaled $7.4 billion, or 21 percent.

Euro-dollar options trading was 150 percent above the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 3 percent above average.

The euro has gained 4 percent this year, the second-best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has risen 7.7 percent, while the yen is the biggest loser, dropping 9.2 percent.

Bernanke will speak tomorrow at a conference in Boston. He told reporters June 19 after a two-day Fed meeting the central bank may begin to slow its $85 billion in monthly bond purchases this year. Minutes of the meeting will be released tomorrow.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

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

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