Euro Declines as ECB Majority Supports Rate Cut

Euro Declines as German Data May Add to Signs of Slowdown
A giant banner promotes the euro currency and economic union on the exterior of the European Commission headquarters in Brussels, Belgium. Photographer: Jock Fistick/Bloomberg

The euro declined against most of its 16 major peers after a majority of European Central Bank members indicated support for an interest-rate cut if the economy doesn’t pick up.

The shared currency fell to the lowest in more than a week against the dollar after the Bundesbank lowered its 2013 forecast for economic expansion in Germany, following the ECB’s euro-area downgrade. The yen briefly extended gains after a magnitude 7.3 earthquake hit Tokyo, fueling haven demand for the Japanese currency. The Dollar Index rose for a third day before a report economists said would show U.S. companies hired fewer workers in November.

The euro is falling as “we are seeing investors re-shift their ECB policy expectations,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “Downward revisions by the Bundesbank acknowledge that the outlook, even for Germany, is looking poor. Germany has been holding up the euro area.”

The euro slid 0.5 percent to $1.2904 at 7:57 a.m. New York time, touching $1.2897, the weakest since Nov. 28. The shared currency dropped 0.6 percent to 106.25 yen.

The Japanese currency 0.1 percent stronger 82.32 yen per dollar. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.3 percent to 80.521.

Rate Leaning

A majority of ECB policy makers were open to cutting the benchmark rate yesterday and there is a possibility of a reduction early next year, three officials with knowledge of the Governing Council’s deliberations said.

The central bank held its benchmark at a record low of 0.75 percent yesterday and kept the deposit rate at zero.

The Frankfurt-based Bundesbank cut its growth projection for 2013 to 0.4 percent from the 1.6 percent predicted in June and said the economy, Europe’s largest, will expand 0.7 percent this year, down from its previous forecast of 1 percent. The economy will contract in the fourth quarter and stagnate in the first, the Bundesbank said. It will grow 1.9 percent in 2014, it said.

The European Union’s statistics office said yesterday that gross domestic product in the euro area fell 0.1 percent in the third quarter from the previous three months, when it dropped 0.2 percent. That confirmed an initial estimate last month.

Employment Data

ECB President Mario Draghi said yesterday the region’s economy is forecast to shrink 0.5 percent this year, more than the 0.4 percent contraction the central bank predicted in September.

The euro has lost 2.4 percent this year, the second-worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slid 9.3 percent and the dollar fell 2.1 percent.

In the U.S., nonfarm payrolls rose by 85,000 workers in November from the previous month when it increased by 171,000, according to the median estimate of economists surveyed by Bloomberg ahead of Labor Department figures today.

Payrolls exceeding estimates “will send a message that the U.S. economy is still expanding at a modest pace,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “I’m more positive on U.S. economic growth, and therefore the U.S. dollar growth.”

Japan Earthquake

The yen climbed against most major peers after a magnitude 7.3 earthquake struck Japan, mirroring movements in the currency after a record temblor in March 2011.

Japan’s currency surged to a record level in the days following the quake and the tsunami that led to meltdowns at a nuclear plant in Fukushima. A tsunami alert was issued for northeast Japan after the quake shook buildings in Tokyo today.

“The yen is being bought in a knee-jerk reaction to headlines on the earthquake,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. “Given the difference in the magnitude of this earthquake to last year’s, the impact on the currency has been quite limited.”

Demand for the yen was muted before this month’s general election and a central bank meeting. The opposition Liberal Democratic Party leader Shinzo Abe, whose party leads in opinion polls before the vote on Dec. 16, has called for unlimited monetary easing.

The BOJ has failed to end more than a decade of deflation by being too cautious, according to Takatoshi Ito, a former finance ministry official who is a contender to become the central bank’s next governor.

The bank’s board under Governor Masaaki Shirakawa, who steps down in April, has done “too little, too late,” Ito, dean of Tokyo University’s Graduate School of Public Policy, said yesterday in an interview in Tokyo.

A final reading on Japan’s third-quarter GDP will confirm a 0.9 percent contraction from the previous three-month period, according to the median estimate of economists surveyed by Bloomberg before the data due on Dec. 10. A separate poll shows economists expect GDP will shrink in the current quarter. The BOJ sets policy on Dec. 19-20.

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