Euro Declines to Three-Week Low on U.K. Retail Data

The euro fell to a three-week low against the pound on speculation the European Central Bank will ease monetary policy while above-target U.K. retail sales data added to bets the Bank of England will increase interest rates.

New Zealand’s dollar rose to the strongest since 2011 against its U.S. peer after the nation posted a larger trade surplus for February than economists forecast. Brazil’s real jumped the most in four months on prospects for more inflation. The Norwegian krone rallied after central-bank Governor Oeystein Olsen said policy makers will start gradually raising the key interest rate after mid-2015. ECB policy makers meet April 3.

There are “large euro-British-pound sellers on the back of the strong U.K. retail number,” said Masafumi Takada, a New York-based director at BNP Paribas SA. Traders have “increasing expectation of ECB easing next week.”

The euro dropped 0.5 percent to 82.72 pence at 5 p.m. New York time, the third-straight daily decline. It touched 82.63 pence, the lowest since March 6. Europe’s common currency fell 0.3 percent to $1.3740, also a third consecutive loss, the longest stretch since January. The yen gained 0.2 percent to 140.41 per euro and slipped 0.1 percent to 102.18 per dollar.

Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs, rose for a third day. It was at 7.43 percent, the highest in almost two weeks, after closing March 24 at 7.02 percent, the lowest since December 2012. The average over the past year is 8.56 percent.

Unconventional Policies

Europe’s shared currency fell versus all of its 16 major peers. Central-bank Governing Council member Luis Maria Linde said yesterday policy makers take the risk of deflation seriously and more monetary easing hadn’t been ruled out. The ECB lowered its benchmark interest rate to a record 0.25 percent in November to spur economic growth.

Reports this week showed declines this month in business climate and manufacturing in Germany, the currency bloc’s biggest economy. The euro region’s consumer prices rose at an 0.8 percent annual pace in February, the European Union’s statistics office said Feb. 28.

“Whether and how the ECB will address euro-zone deflation or disinflation risks in the months ahead will be a key driver for the euro,” Athanasios Vamvakidis, head of Group-of-10 foreign-exchange strategy at Bank of America Merrill Lynch in London, wrote in a research note. “The ECB could be forced into unconventional policies this year, which could be a game changer for the euro.”

Sovereign Divergence

Sterling gained as U.K. retail sales including auto fuel increased 1.7 percent in February from a month earlier. Economists polled by Bloomberg forecast growth of 0.5 percent. Data tomorrow are forecast to show the economy expanded for a fourth quarter.

“The pound should continue to perform well,” Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London, wrote in an e-mailed comment. “Today’s data will also add to the sovereign-divergence trade, whereby currencies expected to raise rates should outperform central bank currencies expected to lower rates.”

The U.K.’s benchmark interest rate is 0.5 percent.

Brazil’s real reversed early losses against the greenback to strengthen as much as 2 percent, the biggest intraday increase since Nov. 18, to 2.2576 per dollar before trading at 2.2589, up 1.9 percent.

Brazilian Inflation

The nation’s consumer prices will rise 6.2 percent this year if policy makers raise the rate by 25 basis points, or 0.25 percentage point, to 11 percent, the quarterly inflation report published today shows. Brazil’s central bank since April has lifted its key rate the most in the world after Turkey as public spending and a weaker currency fan above-target inflation.

New Zealand’s dollar, called the kiwi, jumped after the nation reported a trade surplus of NZ$818 million ($709 million), the most since April 2011. Economists polled by Bloomberg forecast NZ$600 million.

Reserve Bank of New Zealand Deputy Governor Grant Spencer said in a speech in Hong Kong exporters have adjusted to the currency’s strength. Policy makers raised the official cash rate on March 13 by a quarter-percentage point to 2.75 percent and said they planned to remove stimulus faster than previously forecast to contain inflation.

‘More Positive’

“It’s just a more positive outlook for growth and exporters adjusting to this newly strong kiwi,” Lennon Sweeting, a dealer in San Francisco at the broker and payment provider USForex Inc., said in a phone interview. “You can expect a continued rally here with New Zealand dollar, but at some point it’s got to taper off and it will take a 180.”

The kiwi strengthened 0.9 percent to 86.72 U.S. cents and reached 86.86 cents, the highest level since Aug. 2, 2011.

New Zealand’s currency has advanced 5.8 percent in the past three months, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar and the euro dropped 1.3 percent, while the yen gained 2 percent.

Norway’s krone advanced against most major currencies as the Oslo-based Norges Bank kept its main interest rate at 1.5 percent for a 12th meeting.

“The message on balance is positive for NOK inasmuch as it reinforces the notion that the cutting cycle is over,” Josh O’Byrne, a foreign-exchange strategist at Citigroup Inc. in London, wrote today in a report.

Krone Bet

The firm favors betting on Norway’s currency to appreciate against its Swedish counterpart, as “the Riksbank path still leaves considerable room for revisions and where inflation is running considerably below target,” he wrote. The Riksbank is Sweden’s central bank.

The krone climbed 1.1 percent to 8.2463 per euro and advanced 0.9 percent to 6.0015 per dollar.

South Africa’s rand appreciated as much as 1.3 percent to 10.5650 per dollar, the strongest level since Jan. 2, before trading at 10.5837, up 1.2 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, erased gains as a report showed contracts to purchase previously owned U.S. homes unexpectedly fell in February for an eighth straight month.

The dollar gauge traded at 1,015.21. It rose earlier as much as 0.2 percent as separate data showed faster U.S. economic growth and an unexpected drop in unemployment-benefit claims.

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