Euro Near 2-Year Low Before French, Italian Production

Euro Near 2-Year Low Before French, Italian Production Reports
The euro was little changed at $1.2319 as of 8:20 a.m. in Tokyo after sliding to as low as $1.2251 yesterday, the weakest since July 2010. Photographer: Chris Ratcliffe/Bloomberg

The euro declined to within 0.3 percent of its lowest level in two years, before reports forecast to show industrial production shrank in France and Italy as Europe’s debt crisis undermines growth.

The 17-nation currency was 0.3 percent from a one-month low against the yen after European Union Economic and Monetary Affairs Commissioner Olli Rehn said Spain will have to take additional measures soon to meet budget targets. The dollar strengthened versus most of its 16 major peers as Asian stocks declined. The Australian and New Zealand currencies dropped after data showed growth in exports and imports slowed in China.

“The euro is going to stay quite weak, particularly against the U.S. dollar and the yen,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender. “The euro zone is still in recession and it’s probably getting even deeper.”

The euro lost 0.2 percent to $1.2287 as of 6:30 a.m. in London after sliding to as low as $1.2251 yesterday, the weakest since July 2010. The shared currency fell 0.3 percent to 97.69 yen from 97.95 yesterday, when it touched 97.43, the lowest since June 5.

The dollar slid 0.1 percent to 79.50 yen. The so-called Aussie dropped 0.3 percent to $1.0173, while the New Zealand currency weakened 0.3 percent to 79.39 U.S. cents.

Production Reports

Industrial production in France probably dropped 1 percent in May from the previous month, when it climbed 1.5 percent, according to the median estimate in a Bloomberg News survey before Paris-based national statistics office Insee releases the report today.

A separate poll showed output in Italy may have fallen 0.6 percent in the same period after weakening 1.9 percent in April. The figures are also due today. Production in the euro area probably stalled in May after two straight months of decline, economists in another forecast before the data is reported on July 12.

European Central Bank President Mario Draghi signaled the bank may consider another interest-rate cut if the economic outlook warrants it, when he addressed lawmakers in Brussels yesterday. The ECB lowered the main refinancing rate to a record 0.75 percent and cut the deposit rate to zero on July 5.

The possibility of additional reductions “is going to keep downward pressure on euro,” CBA’s Capurso said. “There’s a good chance over the next few months euro could get down to the lows we saw around $1.18.” The currency touched a then four-year low of $1.1877 in June 2010, according to data compiled by Bloomberg.

Spanish Yields

Rehn said it’s “essential” that Spain meet its fiscal targets, speaking to reporters at a briefing after a meeting of euro-area finance ministers in Brussels, which included discussions on measures for the nation’s lenders adopted by heads of government at a summit last month.

Ten-year yields in Spain, which requested as much as 100 billion euros ($123 billion) of European aid last month for its banks, climbed 11 basis points to 7.06 percent yesterday.

Thirty billion euros will be lent by the end of July with the goal of eventually using the euro-area bailout fund to recapitalize banks directly instead of saddling the Spanish government with the debts, Luxembourg Prime Minister Jean-Claude Juncker said today after the finance ministers’ meeting.

Euro Shorts

The difference in the number of wagers on a decline in the euro compared with those on a gain, known as net shorts, was 146,177 in the five days ended July 3, according to figures from the Washington-based Commodity Futures Trading Commission. Traders have held net short positions in the shared currency since the period through August 30, the data show.

The euro has weakened 2.3 percent in the past month, the worst performance alongside the Swiss franc among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s dollar was the biggest gainer, rising 3.2 percent in the same period. The Aussie advanced 2.6 percent.

The South Pacific currencies weakened after a report from the customs bureau showed China’s overseas shipments rose 11.3 percent in June from a year earlier, after increasing 15.3 percent the prior month. Imports grew by 6.3 percent, compared with a 12.7 percent gain in May.

China is Australia’s biggest trading partner and New Zealand’s second-largest export destination.

The dollar strengthened versus most of its peers as Asian stock declines boosted demand for the relative safety of the U.S. currency. The MSCI Asia Pacific Index of shares slid 0.3 percent.

Dollar Index

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, gained 0.1 percent to 83.245. The gauge may climb toward 84.93 should it breach resistance at 83.55, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a note yesterday. Resistance is an area on a chart where orders to sell may be clustered.

The 84.93 level is the 76.4 percent Fibonacci retracement of the index’s decline from a high of 88.71 reached in June 2010 to a low of 72.70 in May 2011, according to data compiled by Bloomberg. The level was last seen in July 2010, the data show.

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