Euro Pares Gain Amid ECB Readiness to Act on Economic Weakness

The euro pared a gain against the dollar amid concern the region’s economy may struggle to grow a day after European Central Bank President Mario Draghi said he’s ready to cut interest rates again if needed.

The 17-nation shared currency strengthened earlier after German factory orders unexpectedly increased in March. The yen gained versus the majority of its 16 most-traded peers on haven demand. Australia’s dollar fell to a two-month low against the greenback after the central bank cut interest rates to a record low. Sweden’s krona strengthened as industrial production exceeded economists’ forecasts.

“The euro, going forward, we think it’s going to be very data sensitive,” Sireen Harajli, a currency strategist in New York at Credit Agricole SA, said in a telephone interview. “There’s going to be a big focus on the data in Europe and how that comes out, and based on that markets will try to assess whether the ECB is going to become more aggressive.”

The euro was little changed at $1.3079 as of 5 p.m. New York time after climbing to $1.3243 on May 1, the highest since Feb. 25. The single currency declined 0.3 percent to 129.48 yen after rising as much as 0.4 percent. The yen gained 0.3 percent to 99 per dollar.

‘Too Expensive’

“You’re not breaking out of the ranges and so people give up fairly brutally,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “It’s too expensive to hold a position because they’re overbought.”

Trading in over-the-counter foreign-exchange options totaled $33.3 billion, compared with turnover of $21.3 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg.

Volume in options on the dollar-yuan exchange rate amounted to $9.2 billion, the largest share of trades at 28 percent. Dollar versus Japanese yen options were the second most-actively traded, at $6.7 billion, or 20 percent.

Dollar-yuan options trading was more than three times more than the average of the past five Tuesdays at a similar time in the day, and yen trading fell 36 percent, according to Bloomberg analysis.

China’s currency strengthened the most in 2013 as Premier Li Keqiang pledged to come up with a plan this year that would allow investment capital to move more freely in and out of China. The yuan rose 0.2 percent, this year’s largest one-day gain, to 6.1537 per dollar, following a 0.17 percent decline yesterday that was the largest of 2013.

Aussie, Krona

Australia’s dollar fell for a second day after the Reserve Bank cut its benchmark interest rate by a quarter percentage point to 2.75 percent. The decision was predicted by eight of the 29 economists surveyed by Bloomberg.

“They have a good case for a cut, as data in Australia has been coming in slightly weaker,” Credit Agricole’s Harajli said. “Our view is that they’re going to wait. We don’t think they’re going to be very aggressive going forward,” she said of further interest-rate reductions.

The so-called Aussie slid 0.7 percent to $1.0185 after declining to $1.0155, the weakest level since March 4.

The krona strengthened against the majority of its 16 major counterparts as the industrial-production data reduced pressure on the central bank to lower interest rates.

Production was unchanged in March from a year earlier, compared with an estimated 0.5 percent decline in a Bloomberg survey. Orders jumped 11.2 percent from a year earlier. The data support the central bank’s economic growth forecast of 0.3 percent in the first quarter, according to Nordea Bank AB.

The krona appreciated 0.2 percent to 6.5342 per dollar and gained 0.2 percent to 8.5453 per euro.

Gain ‘Overdone’

The euro climbed as much as 0.4 percent earlier as German factory orders, adjusted for seasonal swings and inflation, increased 2.2 percent from February, the Economy Ministry in Berlin said. The median estimate in a Bloomberg News survey of economists was for a 0.5 percent decline.

“The bounce that we saw in the euro overnight as a result of the German data was largely overdone,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “The justification for the run-up wasn’t quite there.”

The shared currency dropped 0.3 percent yesterday after Draghi said, during a speech in Rome, “we will be looking at all the data that arrives from the euro-area economy in the coming weeks and, if necessary, we are ready to act again.” The ECB last week reduced its key interest rate to an all-time low, and Draghi said policy makers had an open mind on a negative deposit rate.

The euro has risen 4.2 percent in the past six months, according to Bloomberg Correlation Weighted Indexes that track 10 developed-nation currencies. The dollar gained 1.2 percent and the yen slid 21 percent, the worst performer.

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