Euro Falls to 1-Month Low on ECB Outlook; Canada Dollar Declines

The euro fell to the lowest level in a month as banks from Goldman Sachs Group Inc. to Royal Bank of Scotland Group Plc predicted the European Central Bank will cut interest rates when it meets next month.

The 18-nation currency weakened versus most of its 16 major counterparts after ECB President Mario Draghi said yesterday policy makers would be “comfortable” with further easing in June. The Swiss franc fell to the lowest in a month against the dollar. The yen headed for a weekly advance as a decline in U.S. Treasury yields this year reduced demand for dollars among Japanese investors. Canada’s dollar dropped after a report showed an unexpected jobs decline last month.

“Draghi voiced concern over the strength of the euro, and his voiced contention that a more dovish stance may come into effect in June caused weak longs to capitulate,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said via e-mail. “The market likes to see the white of the ECB’s eyes and I’m not sure we have seen it yet.” A long position is a bet that an asset will increase in value.

The euro fell 0.6 percent to $1.3758 at 5:02 p.m. in New York, extending this week’s loss to 0.8 percent, and reached $1.3745, the weakest level since April 8. It climbed yesterday to $1.3993, the strongest since October 2011.

The shared currency dropped 0.4 percent to 140.13 yen. Japan’s currency fell 0.2 percent to 101.86 per dollar, having appreciated 0.3 percent this week.

Futures Positions

Futures traders increased bets that the euro will gain against the U.S. dollar to the highest since April 4, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 32,551 on May 6, compared with net longs of 25,734 a week earlier.

The Swiss franc fell 0.7 percent to 88.64 centimes per dollar, reaching the biggest drop since March 25, as Europe’s common currency depreciated. It touched 88.73 centimes, the weakest level since April 8. The currency dropped 0.1 percent to 1.2196 against the euro.

The Swiss National Bank set a cap of 1.20 per euro in September 2011 to shield Switzerland from deflation and a recession after investor anxiety caused by the euro region’s debt crisis pushed the franc close to parity with the single currency.

JPMorgan Chase & Co.’s Global FX Volatility Index dropped to 6.3 percent, reaching the lowest level since 2007. It is down from a record high 27 percent in October 2008, shortly after the collapse of Lehman Brothers Holdings Inc.

Forint Drop

Hungary’s forint fell 0.9 percent versus the dollar, the biggest drop of the currency’s 24 major emerging-market counterparts. Banks in the country may be forced to amend the terms of foreign-currency loans. Hungary’s currency traded at 220.99 against the greenback, its weakest since May 6.

Russia’s ruble fell 0.6 percent to 35.2270. President Vladimir Putin visited the Crimea region he annexed in March amid growing tensions as Ukraine said about 20 pro-Russian separatists died in clashes in the eastern port city of Mariupol.

Canada’s dollar dropped 0.6 percent to C$1.0898 versus the U.S. currency, reaching in the biggest decline since March 19. Employment fell by 28,900 in April, Statistics Canada said in Ottawa. Economists surveyed by Bloomberg News projected a 13,500 job increase.

“With the data weak across all sectors, it does suggest a widespread slowness in job growth -- manufacturing is still struggling to add jobs,” said Don Mikolich, executive director of foreign-exchange sales at Canadian Imperial Bank of Commerce. “With the market having strengthened so far these past few sessions, it’s not surprising to see a bit of a pullback.”

Draghi Stance

Draghi said at a news conference in Brussels yesterday that “the Governing Council is comfortable with acting next time, but before we want to see the staff projections that will come out in the early June.”

Analysts at JPMorgan Chase & Co., UBS AG, Nordea Bank AB, Danske Bank A/S and UniCredit SpA also now predict the ECB will cut its benchmark interest rate from the current record-low 0.25 percent when it meets on June 5, according to research notes published following yesterday’s gathering.

While a refinance or deposit rate cut will slow the euro’s rally, it won’t offset the financial sector’s recycling of Europe’s growing current account surpluses into foreign assets, Neil Azous, the founder of Stamford, Connecticut-based advisory firm Rareview Macro LLC, said today in a report.

“Only higher interest rates in the U.S. can lead to real underperformance by the euro,” he said.

Two-year Treasuries yield 0.39 percent, down from a high this year of 0.47 percent. Yields on 10-year notes at 2.63 percent have declined from 3.1 percent.

Policy Outlook

“The takeaway from the ECB meeting is largely that they’ve been known to not pre-commit, but this is as close to pre-committing to a rate cut as they can,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, said in a phone interview. “It’s largely predicated on using euro as a policy tool for easing monetary conditions.”

The euro has gained 5.2 percent in the past 12 months, the third-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 0.9 percent and the yen fell 2.2 percent.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.4 percent to 1,007.81 after dropping to 1,000.59 yesterday, the lowest since Oct. 28.

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