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Euro Reaches 6-Week Low Before ECB Meets This Week; Aussie Rises

The euro fell to a six-week low versus the dollar before European Central Bank Executive Board member Joerg Asmussen speaks in the run-up to a policy meeting this week amid speculation further stimulus will be needed.

The 17-nation currency had its biggest weekly decline last week since July 2012 as some economists predicted the ECB led by President Mario Draghi will cut interest rates to revive growth. The dollar was little changed after Federal Reserve Bank of Dallas President Richard Fisher said the central bank should resume normal monetary policy as soon as possible. Australia’s dollar strengthened versus all its 16 major counterparts as retail sales increased.

“Sentiment toward the euro has turned in the last few days and that’s been endorsed by some of their data disappointing,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Auckland. “We wouldn’t be surprised to see Draghi just elevating slightly the chance for a rate cut, which would keep the pressure on the euro.”

The euro was little changed at $1.3504 at 8:30 a.m. London time after falling to $1.3442, the weakest level since Sept. 18. It slumped 2.3 percent last week. The common currency was also little changed at 133.11 yen. The dollar was at 98.59 yen from 98.67 last week.

The euro dropped last week after an Oct. 31 report showed the region’s annual inflation rate unexpected fell to 0.7 percent last month, the least since November 2009, from 1.1 percent in September.

Rate Cut

Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG all forecast the ECB will cut its main refinancing rate this week, according to a Bloomberg News survey of 68 economists, with the rest predicting no change. The ECB last lowered its benchmark in May to a record 0.5 percent.

The euro declined 1.1 percent in the past week, according to Bloomberg Correlation Weighted Indexes that track 10 developed nation currencies. The dollar strengthened 1.2 percent and the yen advanced 0.2 percent.

The dollar strengthened last week after the Federal Open Market Committee on Oct. 30 cited “underlying strength” in the U.S. economy even as it maintained $85 billion in monthly bond buying to spur growth. The purchases tend to debase the dollar.

“I am not a proponent of ever-increasing government spending,” Fisher, who will vote on monetary policy next year, said in the partial text of a speech today in Sydney. “I mention this simply to illustrate a point. Unlike in most recoveries, government has played a countercyclical, suppressive role. The inability of our government to get its act together has countered the procyclical policy of the Federal Reserve.”

Services Report

The Institute for Supply Management’s U.S. services index dropped to a four-month low of 54 in October from 54.4 the previous month, according to a Bloomberg survey before the report tomorrow. The ISM’s manufacturing index rose to 56.4, the highest since April 2011, the Tempe, Arizona-based group said Nov. 1. Readings above 50 indicate growth.

“The market has been very, very pessimistic and the data hasn’t matched that pessimism,” Westpac’s Speizer said. “Expectations are still quite depressed and it won’t take much to beat those expectations so the chances of the U.S. dollar rising further are quite high.”

Aussie Advances

The Australian dollar gained for the first time in three days after the Bureau of Statistics said retail sales grew at the fastest pace in seven months, adding to prospects the Reserve Bank will refrain from cutting interest rates tomorrow.

Retail sales rose 0.8 percent in September, compared with the median forecast for a 0.4 percent in a Bloomberg survey.

“From an interest-rate perspective domestically, there’s a growing view that we have hit the bottom,” said Hans Kunnen, a senior economist at St. George Bank Ltd. in Sydney. “We think the Aussie remains at these levels unless expectations somewhere are totally knocked off the track.”

The Aussie gained 0.7 percent to 95.02 U.S. cents after falling to 94.22 cents on Nov. 1, the weakest since Oct. 14.

JPMorgan Chase & Co.’s Global FX Volatility Index, which monitors price swings among currencies, rose eight basis points to 8.27 percent after increasing 55 basis points last week. The gauge dropped to 7.55 percent on Oct. 28, the lowest level since Jan. 9.

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