Euro Set for Weekly Loss Before Spanish, German Output

ECB President Mario Draghi
Mario Draghi, president of the European Central Bank, said “downside risks to the euro-area economic outlook have materialized.” Photographer: Hannelore Foerster/Bloomberg

The euro weakened for a third day against the yen after a slide in Spanish industrial production added to concern the region’s debt crisis will worsen as economic growth stalls.

The 17-nation currency headed for its biggest weekly decline versus the dollar in six months as Spanish bonds slumped, pushing 10-year yields to 7 percent. The euro extended losses from yesterday when the European Central Bank cut its benchmark rate to a record. Australia’s dollar and South Africa’s rand dropped as stock losses damped demand for higher-yielding assets. The dollar was little changed before a U.S. report forecast to show the nation is struggling to add jobs.

“The euro is down because we have seen rates crushed this week and they are going to stay low for a long time,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “The U.S. payroll number will give quite a lot of guidance about market expectations about quantitative easing,” or bond purchases, he said.

The euro fell 0.1 percent 98.89 yen at 7:09 a.m. in New York after dropping 1 percent yesterday. The 17-nation currency weakened 0.1 percent to $1.2380, having depreciated 2.3 percent this week, the most since the period ended Dec. 16. The yen was little changed at 79.87 per dollar.

Spain Recession

Spanish industrial production adjusted for the number of working days fell 6.1 percent in May from a year earlier, after an 8.3 percent decline in April, the National Statistics Institute said in Madrid. Spain’s recession probably intensified in the second quarter as Europe’s debt crisis worsened, the central bank said on June 27.

The Spanish 10-year yield rose as much as 26 basis points, or 0.26 percentage point, to 7.04 percent after jumping 37 basis points yesterday. Italy’s 10-year yield increased six basis points to 6.04 percent.

“Downside risks to the euro-area economic outlook have materialized,” ECB President Mario Draghi said yesterday after cutting the main refinancing rate by a quarter-percentage point to a record 0.75 percent and reducing interest on overnight deposits to zero.

The euro has slumped 7.5 percent in the past year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar gained 8.3 percent, and the yen advanced 8 percent.

‘Look Dire’

“The economic fundamentals surrounding the euro area look dire,” said Takuya Kawabata, researcher at Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency-margin company. “We can’t expect any economic indicators that can bolster the euro.”

U.S. employers hired 100,000 workers last month after adding 69,000 in May, the least in a year, according to the median forecast of economists surveyed by Bloomberg News. Company headcounts excluding government agencies may have climbed by 106,000, concluding the smallest quarterly advance since the first three months of 2010.

The Dollar Index, which the Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, was little changed at 82.873. The gauge climbed to 82.950 yesterday, the highest since June 4.

South Africa’s rand declined for a third day, sliding 0.9 percent to 8.2186 per dollar, and the so-called Aussie dropped 0.3 percent to $1.0257.

The Swiss central bank’s foreign-currency reserves rose to a record in June as euro-region’s turmoil spurred policy makers to step up their defense of the franc floor.

Currency holdings jumped to 364.9 billion Swiss francs ($376 billion) at the end of June from 305.9 billion francs the prior month, according to a statement published on the Swiss National Bank’s website today.

The franc was little changed at 1.2011 per euro.

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