The euro rose against the dollar and yen after European Central Bank Governing Council member Ewald Nowotny said markets over-interpreted a signal yesterday that the ECB would consider a deposit rate below zero.
The 17-nation currency slid the most in two weeks versus the greenback yesterday after central bank President Mario Draghi said policy makers had an “open mind” on reducing the deposit rate below zero for the first time. The ECB has “no plan in this direction,” Nowotny told CNBC in an interview. The Dollar Index fell before a U.S. report forecast to show employers stepped up hiring in April. Norway’s krone weakened against the euro after manufacturing contracted.
“What they’re trying to do is downplay the likelihood of that happening immediately and it just shows again the split in parts of the euro zone,” said Jonathan Webb, head of foreign-exchange strategy at a unit of Jefferies International Ltd. in London. Draghi “signaled what step is next for the ECB if they feel it’s necessary. The bigger picture is still quite negative for the euro.”
The euro advanced 0.5 percent to $1.3126 at 7:41 a.m. New York time after sliding 0.9 percent yesterday, the biggest drop since April 17. The common currency strengthened 0.5 percent to 128.64 yen. The dollar rose 0.1 percent to 98.08 yen.
The ECB cut its benchmark rate by a quarter-percentage point to 0.5 percent yesterday at a meeting yesterday in Bratislava, Slovakia. Policy makers reduced the marginal lending rate, which banks use for overnight credit, to 1 percent, from 1.5 percent, and kept the deposit rate at zero.
Asked at a press conference if further action may include a negative deposit rate, Draghi said the central bank was “technically ready.” He said the ECB would continue to lend banks as much money as they need at least until mid-2014.
Euro-area producer-price inflation slowed to the lowest annual rate in three years. Factory-gate prices rose 0.7 percent in March from a year earlier, compared with a revised 1.4 percent increase the previous month, the European Union’s statistics office said. That’s the least since March 2010.
The euro-area economy will shrink more than previously forecast in 2013, the European Commission said today in new forecasts. Gross domestic product will fall 0.4 percent this year, compared with a February prediction of a 0.3 percent, the Brussels-based commission said.
The euro will climb to the strongest since February against the dollar, according to BNP Paribas SA analysts including head of currency strategy Steven Saywell.
“We are comfortable with our long euro-dollar recommendation targeting $1.34,” the analysts wrote in an e-mailed report. A long position is a bet an asset will rise. BNP economists forecast the ECB will cut its main refinancing rate again in July, according to the report.
The euro has gained 1.8 percent in the past month, the second-best performer after the pound, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The yen has dropped 6.2 percent and the dollar weakened 0.5 percent.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.3 percent to 81.962 after jumping 0.9 percent yesterday.
U.S. payrolls increased by 140,000 last month after an 88,000 gain in March, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department report at 8:30 a.m. in Washington. The unemployment rate held at 7.6 percent, according to a separate survey.
“The data has softened recently and that could show up in non-farm payrolls,” said Richard Grace, chief currency strategist and head of international economics at Commonwealth Bank of Australia in Sydney. “If the number is weak, the U.S. dollar will go down a little as will long-bond yields.”
Norway’s krone weakened against the euro after a report showed the nation’s manufacturing contracted more than economists forecast as production slumped. The purchasing managers’ index fell to 48.9 from a revised 50 in March, Danske Bank A/S said. Readings below 50 signal a contraction. Economists surveyed by Bloomberg predicted a decline to 49.8.
The krone dropped 0.4 percent to 7.6111 per euro and was little changed at 5.7974 per dollar.