The euro fell to a two-week low against the dollar as a report showed weakening services and manufacturing in the region, adding to speculation the European Central Bank will lower interest rates to spur economic growth.
The yen erased gains versus the dollar as risk appetite improved on chances for a rate cut. The euro dropped against most of its major counterparts as a German purchasing-manager index unexpectedly fell after the Bundesbank said yesterday the nation’s recovery may be delayed. Sweden’s krona slid after the nation’s jobless rate unexpectedly increased.
“These data were particularly important for ECB rate-cut expectations,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview.
The euro declined 0.5 percent to $1.2996 at 5 p.m. New York time and touched $1.2973, the weakest level since April 8. The 17-nation currency weakened 0.3 percent to 129.28 yen after falling 0.2 percent yesterday. Japan’s currency lost 0.3 percent to 99.48 per dollar after appreciating earlier as much as 0.8 percent to 98.49.
Stocks and European government bonds rose. The Stoxx Europe 600 Index climbed 2.4 percent, and the Standard & Poor’s 500 Index gained 1 percent. Italy’s two-year note yields fell to a record-low 1.125 percent as prices rose.
“It’s really a rally on the hope of more liquidity and more money printing than anything else,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview.
U.S. markets sank and recovered over a span of seconds after a false report on the Twitter account of the Associated Press said there had been explosions at the White House. The yen briefly climbed against the dollar before erasing the gain.
The Swedish krona dropped to a four-month low against the dollar after Statistics Sweden said the seasonally adjusted unemployment rate climbed to 8.4 percent in March, from 8.2 percent the previous month. The median estimate of economists surveyed by Bloomberg was for the rate to stay unchanged.
The krona sank 1.8 percent to 6.6486 and touched 6.6518, the weakest level since Dec. 18. The currency slid 1.3 percent to 8.6418 per euro.
Sterling dropped to a two-week low against the dollar after the Confederation of British Industry reported a U.K. factory index unexpectedly fell this month to the lowest since October 2010. The gauge of orders fell to negative 25, from negative 15 in March. The pound fell 0.3 percent to $1.5240 and reached $1.5197, the lowest level since April 4.
The yen declined against the greenback after appreciating 0.3 percent yesterday, its first gain in five days. While Japan’s currency weakened to 99.95 on April 11, it hasn’t breached the 100-per-dollar level since April 2009.
The Bank of Japan said April 4 it will increase inflation to 2 percent within two years through measures that also devalue the yen. The central bank is scheduled to deliver its next policy statement in Tokyo on April 26.
“We continue to think that the trend for the yen is for it to weaken further, and we think that dollar-yen is going to breach the 100 level, probably in the near term.”,” Sireen Harajli, a currency strategist in New York at Credit Agricole SA, said in a phone interview.
The yen will trade at 100 to the dollar at year-end, and at 107 at the end of 2014, according to the median forecast in a Bloomberg survey of 55 economists and analysts.
Europe’s shared currency fell after a euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries was 46.5 in April, below the level of 50 that separates contraction from expansion, London-based Markit Economics said. A gauge of German factory output dropped to 47.9 from 49, Markit said. Economists surveyed by Bloomberg had forecast no change.
The data “led markets to believe that a rate cut is imminent by the ECB,” Credit Agricole’s Harajli said. “The German PMI figures came in pretty weak. They pointed to a contraction for the first time in a while.”
The ECB may cut borrowing costs if data show a need for it, Executive Board Member Joerg Asmussen said April 20 on a panel in Washington. ECB President Mario Draghi said the previous day the economic situation in the euro area hasn’t improved since the central bank’s last policy meeting on April 4. The ECB’s benchmark rate is currently 0.75 percent.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said investors should sell the euro.
“Expect an ECB cut soon, but will it lead to real growth?” Newport Beach, California-based Gross wrote in a posting on Twitter. “Doubtful. Euro needs to go down.”
The 17-nation currency has still strengthened 2 percent this year against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. The yen slumped 11 percent, and the dollar gained 3.7 percent.
The dollar gained versus most major peers today after China’s purchasing managers’ index fell to 50.5 in April, according to a preliminary reading released by HSBC Holdings Plc and Markit Economics said, compared with a final figure of 51.6 for March.
Thailand’s baht dropped the most since July against the dollar based on closing prices on speculation the central bank will intervene to slow gains that may hurt exports.
The baht has started to move beyond its fundamentals, central bank Governor Prasarn Trairatvorakul said April 19, while Assistant Governor Paiboon Kittisrikangwan said yesterday the currency has risen “too much and too quickly.”
The currency weakened 0.4 percent to 28.81 per dollar, the biggest decline since July 6.