The euro weakened versus most of its major counterparts amid concern policy measures from the European Central Bank may not be enough to contain the region’s debt crisis.
The 17-nation currency declined from almost a two-month high against the dollar as ECB President Mario Draghi said the central bank would be willing to buy bonds of maturities as longs as three years. The U.S. currency gained as global stocks and commodities fell even after a report showed manufacturing in the U.S. contracted for a third month, adding to speculation the Federal Reserve will announce another round of monetary easing.
“It’s not a popular view that Draghi would go back on his commitments from the previous meeting, so most people are anticipating what he will say,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “I now think the big event of the week is Friday, with U.S. payroll data pushing the Fed toward a decision.”
The euro fell 0.2 percent to $1.2566 at 5:01 p.m. New York time, after climbing to $1.2638 on Aug. 31, the strongest since July 2. The shared currency was little changed at 98.57 yen, after appreciating to 99.03 yen on Aug. 31, the strongest since Aug. 21. The yen fell 0.2 percent to 78.43 per dollar.
“You sell the euro; there’s a lot already priced in and we pretty much know what the ECB is going to do,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “They’re probably going to purchase bonds in the two-year area, conditional on Spain asking for help.”
The euro has dropped 4.1 percent this year, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 2.9 percent, and the dollar weakened 0.7 percent.
The common currency faces “good resistance” in the $1.2684-to-$1.2692 range, Tom Fitzpatrick and Shyam Devani, technical strategists at Citigroup Global Markets, wrote today in a research note.
The Dollar Index rose 0.2 percent to 81.346 as the Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today.
The U.S. economy added 125,000 payroll jobs in August, according to the median estimate in a Bloomberg News survey of 87 economists before the Labor Department report Sept. 7. That compared with an increase of 163,000 jobs in July.
The Standard & Poor’s 500 Index dropped as much as 0.7 percent, while the MSCI World Index of stocks fell 0.4 percent.
Australia’s dollar declined 0.2 percent against its U.S. counterpart after gaining as much as 0.4 percent. The central bank kept its overnight cash-rate target at 3.5 percent. It earlier fell to $1.0224, the weakest level since July 25. The Aussie was little changed at 80.19 yen after sliding 0.9 percent yesterday.
The nation’s economy expanded 0.7 percent in the second quarter from the previous three months for the strongest first half of growth since 2007, a Bloomberg News survey showed before a government report tomorrow.
New Zealand’s dollar tumbled against the greenback even as the nation posted its first gain in commodity export prices since January. The so-called kiwi fell 0.4 percent to 79.45 U.S. cents and declined 0.2 percent to 62.31 yen.
Draghi said yesterday the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. The ECB announces its next policy decision on Sept. 6.
Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels that the bank has lost control of borrowing costs in the 17-nation monetary union. Bloomberg News obtained a recording of his comments, some of which were published by Italian news agency AGI yesterday.
There are growing “expectations for some kind of ECB bond-buying intervention,” said Eimear Daly, a currency analyst at Monex Europe in London. “Everyone is completely fixated on the bond-buying plan.”
European Union President Herman Van Rompuy traveled to Berlin for talks with German Chancellor Angela Merkel today as Italian Prime Minister Mario Monti hosts French President Francois Hollande in Rome.
Traders and strategists are more divided than at any time since 2011 over whether officials will be able to keep the currency from tumbling, according to data compiled by Bloomberg.
At about $1.26, the euro is 3.3 percent above the $1.22 median year-end estimate of more than 50 analysts, after the gap expanded to 3.8 percent last week. The last time the euro exceeded the consensus by that much was in July 2011, and it tumbled 9.4 percent in the next 10 weeks.