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Euro Drops as Germany Seeks European Ruling on ECB Bailout Plan

A Euro Sculpture Sits Outside the ECB Headquarters in Frankfurt
An illuminated euro sign sculpture stands outside the headquarters of the European Central Bank at night in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

The euro fell for the first time in three days against the dollar as Germany’s top court questioned a rescue plan for debt crisis-hit euro-area nations and asked Europe’s highest judges to rule on its legality.

The common currency pared a weekly gain as Germany’s Federal Constitutional Court sought advice on whether the Outright Monetary Transactions bond-buying program is legal. The Bloomberg Dollar Spot Index snapped a four-day decline before U.S. data analysts said will show jobs growth quickened last month. South Korea’s won strengthened, adding to signs an emerging-market selloff is easing. Ukraine’s hryvnia gained after the nation’s central bank imposed capital controls.

“It’s a clear euro negative if you’re questioning the whole legality of the existing framework of the OMT program,” said Carl Hammer, a currency strategist at SEB AB in Stockholm. “The program has had a material effect in lowering the risk premia in European assets, which had supported the euro.”

The euro fell 0.2 percent to $1.3570 at 6:50 a.m. New York time, having risen 0.6 percent this week. The 18-nation currency dropped 0.1 percent to 138.60 yen, paring gains since Jan. 31 to 0.7 percent. Japan’s currency was little changed at 102.14 per dollar.

The European Court of Justice has been asked to rule on a claim that the region’s central bank overstepped its powers in announcing the OMT in September 2012. The still-unused program allows the ECB to buy bonds of indebted nations and has been credited with helping to calm record borrowing costs.

U.S. Jobs

The dollar rose against 10 of its 16 major peers before a Labor Department report that analysts in a Bloomberg New survey forecast will show U.S. employers boosted payrolls by 180,000 in January. That compares with a December increase of 74,000, the smallest since January 2011. The unemployment rate is projected to remain at 6.7 percent, the lowest level since 2008.

Fed policy makers implemented the first two cuts to purchases of Treasuries and mortgage debt in December and January, paring actions designed to cap borrowing costs and spur the economy. They will scale down the program, now at $65 billion, by $10 billion at each meeting to end it this year, according to the median forecast in a Jan. 10 Bloomberg News survey of analysts.

Declining Volatility

Deutsche Bank AG’s foreign-exchange volatility index declined to 7.8 percent. The gauge, based on three-month currency options for nine major pairs, slid 57 basis points since Jan. 31, set for its first weekly drop in a month.

The dollar has fallen against all but the yen and U.K. pound among its major peers this week. The Australian dollar has risen 2.2 percent.

The euro rose the most in two weeks yesterday after the ECB refrained after its policy meeting from introducing additional stimulus that tends to debase the currency. Central bank President Mario Draghi said officials could take action to counter low inflation when more data is available. The ECB will publish quarterly macro-economic forecasts next month.

“We remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required,” Draghi said. “We firmly reiterate our forward guidance. We continue to expect the key ECB interest rates to remain at present or lower levels.”

Ukraine’s hryvnia gained 3.5 percent to 8.5450 per dollar as the central bank imposed limits to foreign-currency purchases after previous interventions failed to offer relief to the currency. Olena Shcherbakova, head of monetary policy at Ukraine’s central bank, said the measures would be temporary.

South Korea’s won traded 0.4 percent stronger at 1,074.45 per dollar, gaining 0.6 percent this week, the steepest rise since the five days ended Dec. 27. All but China’s yuan and the Colombian peso among the 24 emerging-market currencies tracked by Bloomberg have strengthened this week, led by a more than 2 percent advance in Poland’s zloty.

“With emerging-market currencies recovering recent losses, we’re seeing a slight increase in risk appetite,” said Lee Dae Ho, a currency analyst at Hyundai Futures Corp. in Seoul. “The improvement in U.S. data is a double-edged sword for Korea, as it also implies further cuts in the Federal Reserve’s stimulus.”

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