Euro Falls to Three-Month Low on ECB Easing Speculation

The euro fell to almost a three-month low amid signals from European policy makers of willingness to undertake further monetary easing and as anti-establishment political groups seek to win power at polls this weekend.

The yen dropped the most in two weeks as a report signaling an improving outlook for Chinese manufacturing boosted stocks and damped haven demand. The dollar rebounded from a key technical level versus the yen as a report showed sales of existing homes rose in April. Thailand’s baht declined as the nation’s military chief staged a coup two days after imposing martial law. The 18-nation currency weakened as Bundesbank President Jens Weidmann said at event in Frankfurt that unconventional monetary policy measures will be considered.

“Euro is weaker because there’s mounting expectation that the European Central Bank is going to come out with aggressive policy in June,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said in a phone interview. ECB officials’ comments in line ECB President MarioDraghi’s remarks on May 8 are “validating market expectations. People like to confirm what they believe and that’s what’s going on.”

The shared currency declined 0.2 percent to $1.3656 per euro at 5 p.m. New York time. It reached $1.3635 yesterday, the lowest level since Feb. 13. The yen weakened 0.4 percent to 101.74 per dollar, dropping the most on a closing basis since April 1. Japan’s currency fell 0.1 percent to 138.93 per euro.

Rand Gains

South Africa’s rand rallied for a second day, gaining 0.4 percent to 10.3274 per dollar. The country’s central bank kept its benchmark interest-rate unchanged at 5.5 percent.

A preliminary reading of a Chinese manufacturing purchasing managers’ index by HSBC Holdings Plc and Markit Economics was 49.7 in May, the highest since December. The median estimate of economists polled by Bloomberg News was 48.3. A reading below 50 signals contraction.

“We took our direction from the Chinese data overnight,” Adam Cole, head of Group of 10 currency strategy at Royal Bank of Canada in London, said in a phone interview. “When it’s a risk-on move, generally the yen is the biggest loser.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, gained 0.1 percent to 1,010.61.

U.S. Treasury 10-year note yields rose two basis points, or 0.02 percentage point, to 2.55 percent, based on Bloomberg Bond Trader data. Earlier they climbed to 2.57 percent, the highest since May 14.

Rate Watch

The yen’s decline “was a more immediate reaction to the data,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. “I don’t necessarily think the one China data point is something that carries through in terms of boosting risk for days and days ahead. It’s a notable development because there’ve definitely been concerns.”

The dollar dropped to 100.82 yen yesterday, the lowest since Feb. 5, before closing in New York at 101.37, above the 200-day moving average at 101.26. It was the third consecutive day the greenback dipped below the support line. The last time it repeatedly crossed the gauge and recovered, beginning in October, it marked the start of a 9 percent rally to a five-year high of 105.44. Support refers to an area on a chart where buy orders may be clustered.

Sales of previously owned U.S. homes rose in April for the first time this year as the weather warmed, price increases slowed and more properties were put on the market.

Closings, which usually take place a month or two after a contract is signed, increased 1.3 percent to a 4.65 million annual rate, the National Association of Realtors reported. Economists surveyed by Bloomberg projected a 4.69 million pace.

Euro Weakness

The euro was lower versus most of its major peers after Markit Economics said its euro-area composite PMI was at 53.9 in May, in line with the median estimate of analysts in a Bloomberg News survey. A factory gauge slipped more than anticipated and a measure of services rose to a 35-month high.

Draghi has signaled he may add monetary stimulus in June because policy makers are “dissatisfied” with the inflation outlook.

The European Parliament’s balloting runs through Sunday. Galvanized by the debt crisis and the European Union’s 10.5 percent unemployment rate, protest parties are set to surge in Greece, France, Italy, the Netherlands, Austria, the U.K. and elsewhere -- making it harder to steer the 28-nation bloc.

The 18-nation currency has fallen 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The Aussie dropped 0.7 percent and the dollar advanced 0.1 percent.

Thai Army Chief Prayuth Chan-Ocha announced on national television alongside senior military officials that he was seizing control in order to restore peace. Prayuth previously said his declaration of martial law wasn’t a coup.

The baht fell 0.3 percent to 32.571 per dollar.

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