Feb. 21 (Bloomberg) -- The euro declined below $1.32 for the first time in six weeks as an industry report showed services and manufacturing in the region shrank at a faster pace in February than economists forecast.
The 17-nation currency fell for a third day versus the yen on speculation the European Central Bank may have to keep borrowing costs lower for longer to help spur a recovery. The Dollar Index fell from a five-month high as manufacturing in the Philadelphia region unexpectedly contracted. The pound rose the most in two weeks against the euro.
“The euro zone is still facing contraction, there’s still is a good amount of headwinds to the economy,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “That’s going to weigh on the euro.”
The euro fell 0.7 percent to $1.3190 at 5 p.m. New York time after dropping to $1.3161, the lowest level since Jan. 10. The common currency declined 1.2 percent to 122.81 yen. The yen strengthened 0.5 percent to 93.11 per dollar.
The Dollar Index pared gains after the Fed’s Philadelphia’s general economic index dropped to minus 12.5, the lowest reading since June, from minus 5.8 in January. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.
IntercontinentalExchange Inc.’s Dollar Index, used to track the greenback versus the currencies of six U.S. trading partners, gained 0.4 percent to 81.378 after rising to 81.508, the highest level since Sept. 5.
South Korea’s currency snapped a two-day rally as the nation’s incoming President Park Geun Hye said yesterday currency stability is important. The won dropped the most in three weeks on speculation the Federal Reserve will refrain from extending monetary easing in the U.S., South Korea’s second-biggest export market.
The won fell 0.7 percent to close at 1,086.24 per dollar.
Mexico’s peso fell for a second day as the Fed’s meeting minutes damped appetite for higher yielding assets. The currency depreciated 0.2 percent to 12.7464 per U.S. dollar and touched 12.7995, the weakest level since Feb. 11.
The pound gained 0.8 percent versus the shared currency to 86.46 pence after adding as much as 1 percent, the most since Feb. 7. Sterling added 0.1 percent to $1.5254 after falling to $1.5132, the lowest since July 2010.
The euro declined versus the majority of its 16 most-traded peers as a composite index of factory and services output in the 17-nation currency bloc fell to 47.3 from 48.6 in January, London-based Markit Economics said. Economists forecast a reading of 49, according to the median of 22 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.
“It’s a technical pullback,” Michael Woolfolk, global markets strategist in New York at Bank of New York Mellon Corp., said in a telephone interview. “The market was overly long euros and we have seen a pullback temporarily in risk, some profit taking.” A long position is a bet an asset will rise in value.
The euro has trimmed its gain so far this year to 2 percent, according to a gauge of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar added 2 percent, while the yen slumped 5.7 percent.
The Dollar Index advanced a second day after minutes of the Fed’s February policy meeting released yesterday showed some Federal Open Market Committee officials “emphasized that the committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved.”
Officials were divided about the strategy behind Chairman Ben S. Bernanke’s program of buying bonds until there is “substantial” improvement in a U.S. labor market burdened with 7.9 percent unemployment, according to the minutes released yesterday in Washington. Some said an earlier end to purchases might be needed and others warned against a premature withdrawal of stimulus, the minutes showed.
“The reverberations from the FOMC minutes are still a factor for the market,” Robert Lynch, a New York-based currency strategist at HSBC Holdings Plc, said in a telephone interview. “You’ve got what has been overnight and, at least so far today, appears to be more of a risk-off bias in financial markets stemming mostly from the debate now about just how much more Fed easing there’s going to be.”
The yen advanced all of its major peers as former Bank of Japan Deputy Governor Kazumasa Iwata and Asian Development Bank President Haruhiko Kuroda were seen as the leading candidates to head the central bank, the Mainichi newspaper reported today, without citing anyone.
Iwata would be the most yen-bearish candidate because he advocates foreign-bond purchases, according to a note from Citigroup Inc. this week.
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