Euro Falls Most in 6 Months as CPI Fuels ECB Bets

Photographer: Simon Dawson/Bloomberg

The euro declined against most of its 16 major peers. Close

The euro declined against most of its 16 major peers.

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Photographer: Simon Dawson/Bloomberg

The euro declined against most of its 16 major peers.

The euro slid the most in six months versus the dollar after the inflation rate in the region unexpectedly cooled, fueling speculation the European Central Bank will cut interest rates to spur the economy.

The shared currency fell against most of its 16 major peers as separate data showed unemployment in the euro area climbed to a record 12.2 percent. The yen pared its first gain in five days versus the dollar as a U.S. business barometer unexpectedly jumped. Brazil’s real dropped the most in more than two months as the nation’s budget deficit widened more than forecast.

“With inflation already running well below the ECB’s 2 percent target, any cooler-than-expected inflation reading is probably going to set off alarm bells that will result in the ECB becoming increasingly worried about the strength of the euro,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview.

Europe’s 17-nation currency slid 1.1 percent to $1.3584 at 5 p.m. New York time and fell as much as 1.2 percent in the biggest intraday drop since April 17. The euro sank 1.3 percent to 133.60 yen. Japan’s currency gained 0.2 percent to 98.36 per dollar after depreciating yesterday to 98.68, the weakest level since Oct. 17.

The euro pared a monthly advance versus the dollar to 0.4 percent. It has gained 3 percent this year. The U.S. currency was little changed versus the yen in October and has climbed 13 percent since the start of the year.

Volatility Rises

A measure of price swings among the currencies of Group of Seven nations increased to the highest in two weeks. JPMorgan Chase & Co.’s G7 Volatility Index rose to 7.98 percent, the highest since Oct. 17, after sliding to 7.48 percent Oct. 28, the lowest level since Dec. 21. The 2013 average is 9.37 percent.

Brazil’s real dropped against all of its 16 most-traded counterparts after the country’s budget gap increased more than forecast, adding to speculation the nation’s credit rating will be downgraded. The currency lost 2.2 percent to 2.2398 per dollar and slid as much as 2.3 percent, the most since Aug. 21.

The Canadian dollar rose versus all of its major peers after the nation’s economy expanded 0.3 percent in August, topping forecasts for a 0.1 percent increase. The currency, nicknamed the loonie, gained 0.5 percent to C$1.0431 per dollar.

Krona Falls

Sweden’s krona dropped against the dollar and euro as investors bet euro-area inflation at its slowest in almost four years will weigh on the nation’s economy and prompt the central bank to cut interest rates. It slid 1.4 percent to 6.4824 per greenback, fell 0.3 percent to 8.8051 to the common currency and declined 0.7 percent to 1.0908 per Norwegian krone.

An index of Swedish manufacturing declined to 54.5 in October from 56 the previous month, economists in a Bloomberg survey forecast before data tomorrow.

“The latest underperformance of krona versus euro, dollar and especially against the Norwegian krone is fundamentals catching up with the otherwise fairly resilient krona,” said Valentin Marinov, head of European Group-of-10 foreign-exchange strategy at Citigroup Inc. in London.

The euro area’s annual consumer-price index declined to 0.7 percent in October, the least since November 2009, from 1.1 percent last month, the European Union’s statistics office said. A Bloomberg News survey estimated it would stay at 1.1 percent.

The central bank has said there’s a “subdued outlook” for price growth in the region, and the October data mark the ninth month the rate has been less than its 2 percent ceiling. Policy makers meet Nov. 7.

December Cut

The ECB will cut its refinancing rate to 0.25 percent from 0.5 percent at its meeting in December, according to new forecasts published in a client note by Greg Fuzesi, an economist at JPMorgan Chase & Co. in London. The weaker-than-forecast CPI numbers raise “very big” questions about the outlook for inflation and the ECB’s response, Fuzesi said.

The euro has gained 6.1 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has advanced 2.7 percent, while the yen, the biggest loser, has slid 11 percent.

Japan’s currency rose against most major peers after the policy-setting U.S. Federal Open Market Committee said yesterday officials see improvement in the economy while maintaining monthly bond purchases as they await evidence of further gains.

The Federal Reserve buys $85 billion of bonds a month to push down long-term yields and spur growth. A Bloomberg survey taken Oct. 17-18 forecast it would slow purchases in March.

Challenged Market

“The FOMC statement has challenged the market belief that the Fed would wait until 2014 before tapering,” said Daragh Maher, a currency strategist at HSBC Holdings Plc based in London. “This is bad for the risk-on mood that had been prevailing and has lent consequent support to the traditionally safe-haven yen.”

The Bloomberg U.S. Dollar Index rose for a fifth day as the MNI Chicago Report’s business gauge rose to 65.9 this month, the fastest pace since 2011, from 55.7 in September. Readings above 50 signal growth. A Bloomberg survey forecast 55. The dollar gauge increased as much as 0.4 percent to 1,011.73, a two-week high.

Trading in over-the-counter foreign-exchange options totaled $41 billion, from $38 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 $9.4 billion, the largest share of trades at 23 percent. Options on the dollar-yen rate totaled $6.5 billion, or 16 percent.

Euro-greenback options trading was 34 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 23 percent below average.

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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