The euro declined against most of its major counterparts as concern that the global economy is slowing overshadowed policy makers’ efforts to contain Europe’s three-year-old debt crisis.
The shared currency touched its lowest versus the dollar in almost two weeks as the International Monetary Fund cut its growth forecasts. It also said Greece should get more time to meet fiscal targets. The euro fell after Standard & Poor’s cut Spain’s credit rating, then rose on bets the move will pressure the nation to seek aid, unlocking a stimulus program. European Union leaders meet next week. Singapore’s dollar climbed as its central bank unexpectedly left monetary policy unchanged.
“You had the sentiment around Spain where the S&P downgrade evolved from being a concern to a potential benefit,” Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said in a telephone interview. “The IMF news was ugly at first and then better at second as they backed off on austerity demands. If you follow the slope of where the euro went this week, that seems to generalize the path.”
The euro depreciated 0.7 percent to $1.2951 this week in New York, halving last week’s 1.4 percent gain. It touched $1.2826, the lowest level since Oct. 1, almost falling below its 200-day moving average of $1.2824. The 17-nation currency fell 0.9 percent to 101.61 yen. The Japanese currency gained 0.3 percent to 78.44 yen per dollar.
Futures traders increased their bets that the 17-nation currency will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 72,570 on Oct. 9, compared with net shorts of 50,265 a week earlier.
The Swedish krona was the biggest loser against the euro as inflation abated more than forecast, raising the possibility of an interest-rate cut before year-end. A Statistics Sweden report showed consumer price growth slowed to an annual 0.4 percent in September, from 0.7 percent the prior month. A Bloomberg survey projected a decline 0.6 percent.
The currency fell 0.7 percent to 8.6737 per euro and slid 1.4 percent to 6.6975 to the greenback.
The krona will probably decline as European asset prices stabilize and investors unwind their bets on haven currencies including Sweden’s, according to Morgan Stanley.
“We would expect the Swedish krona to lead the way with the current round of position-unwinding,” Morgan Stanley said Oct. 11 in a research report.
The Australian dollar gained against 14 of its 16 most-traded peers this week amid speculation that China, the nation’s biggest trader partner, will take steps to stimulate flagging economic expansion. The Aussie rose 0.5 percent to $1.0233.
China’s economy expanded 7.6 percent in the second quarter from a year earlier, the least in three years. Growth may have slowed to 7.4 percent in the third quarter, according to the median estimate of 27 economists surveyed by Bloomberg.
The euro region’s economy will expand 0.4 percent this year, 0.1 percentage point less than forecast in July, and grow 0.2 percent in 2013, versus 0.7 percent predicted three months ago, the Washington-based IMF said in a report. The world economy will grow 3.3 percent this year, the slowest pace since the 2009 recession, compared with a July forecast of 3.5 percent, it said.
The projections came even after the Federal Reserve began a third round of debt purchases to spur the U.S. economy and the European Central Bank announced an unlimited bond-purchase program to stem its region’s financial turmoil.
“The IMF’s report, which obviously concerns the fundamentals and what central banks can do about fundamentals, brings everyone back down to reality,” Stephen Gallo, foreign-exchange strategist at Credit Agricole SA in London, said in a telephone interview.
The euro pared its weekly loss amid optimism that Spain will request an aid package, which would unlock the ECB’s bond-buying plan to reduce borrowing costs in debt-strapped nations on its periphery. New York-based S&P said Oct. 10 it had cut Spain’s rating two levels to BBB-. Spanish Prime Minister Mariano Rajoy has held off on deciding whether to request a bailout, a condition the ECB insists on.
EU leaders open a two-day summit in Brussels on Oct. 18.
IMF Managing Director Christine Lagarde said Greece should get two years to meet fiscal targets and suggested debt reductions are needed before a 130 billion-euro ($167 billion) bailout of the nation where the debt crisis began can proceed.
“Those types of comments reduce the risk of European lenders allowing a nation like Greece to default because it can’t meet its fiscal targets,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “Those types of comments are supportive of the euro.”
The euro will strengthen to $1.35 in the next three to six months, with the dollar weakened by the Fed’s latest round of asset purchases, which may debase the currency, according to Danske Bank A/S.
“We expect the unwinding of short euro positions to continue, and we also expect the Fed’s open-ended easing program to support euro-dollar going forward,” Morten Helt, a senior analyst based in Copenhagen, wrote in a report. “We still like to buy euro-dollar on dips.” A short position is a bet that a currency or security will fall.
The yen rose this week against 13 of its 16 major peers. Japanese Finance Minister Koriki Jojima said Oct. 11 that he told his Group of Seven counterparts the currency’s strength is hurting the nation’s economy and that countries should cooperate on foreign exchange if necessary. A stronger yen makes Japanese products pricier overseas and erodes domestic exporters’ earnings when repatriated.
The Japanese currency appreciated 3.7 percent over the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes and more than twice the 1.8 percent gain of the second-biggest winner, the Canadian dollar. The euro fell 1.8 percent, and the dollar rose 0.2 percent.
Singapore’s currency climbed after the central bank said it would leave monetary policy unchanged as inflation risks trump worries over a shrinking economy.
“This policy stance is assessed to be appropriate in containing inflationary pressures and keeping the economy on a path of restructuring toward sustainable growth,” the Monetary Authority of Singapore said in a statement following its semi-annual exchange-rate review.
The Singapore dollar strengthened 0.6 percent to S$1.2222 per dollar and rallied 1.3 percent to S$1.5830 per euro.