The euro reached a three-month low against the dollar as European Central Bank President Mario Draghi signaled policy makers are ready to take action in June should they see low inflation becoming entrenched.
The 18-nation currency fell below its 200-day moving average for a second day after protest parties racked up gains across the 28-nation European Union in elections to the bloc’s Parliament. The yen dropped to the lowest in a week versus the greenback as Bank of Japan Deputy Governor Kikuo Iwata said excessive gains in the currency are bad for the nation’s exports. Sweden’s krona appreciated versus all of its 16 major peers after retail sales unexpectedly rose in April.
“Given the low levels of inflation that Europe has, and the growth signals that they’re getting right now, there’s enough justification for negative interest rates,” said Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, by phone from Toronto. “Beyond that I think what Draghi seems to be saying, is they need to see how things pan out, particularly on the inflation front, before they can reckon with any other measures.”
The euro rose to $1.3646 as of 5 p.m. New York time after falling to $1.3615, the weakest since Feb. 13 and below its 200-day moving average of $1.3639. Europe’s shared currency was up 0.1 percent to 139.10 yen after declining to 138.15 on May 21, the least since Feb. 6. The yen traded at 101.94 per dollar after depreciating to 102.05, the weakest level since May 15.
U.S. and U.K. financial markets are closed today for public holidays.
The euro has declined 1.4 percent in the past month, the worst performer after the Swiss franc of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.1 percent and the yen advanced 0.4 percent.
Hedge-fund managers and other large speculators added to bets the euro will weaken against the dollar. The difference in the number of wagers on a decline in the common currency, compared with those on a gain -- known as net shorts -- was 9,220 on May 20, compared with 2,175 a week earlier, according to the Commodity Futures Trading Commission.
“What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries,” Draghi said in a speech at a forum in Sintra, Portugal. “We are not resigned to allowing inflation to remain too low for too long.”
The euro has declined since touching a 2 1/2-year high of $1.3993 on May 8, when Draghi said he was comfortable with adding stimulus as soon as next month, denting demand for the currency. He today said the key issue for the ECB right now is the timing of any action. The ECB next meets on June 5.
Protest parties surged in Greece, France and the U.K. in elections to the region’s Parliament, while Chancellor Angela Merkel’s bloc won the most votes in Germany. Merkel’s Christian Democratic bloc won 35.5 percent, the least since voters began choosing European Union lawmakers in 1979, according to broadcaster ARD. The Alternative for Germany party, which wants to dismantle the currency union, took an estimated 7 percent.
“We’re thinking about any ramifications that we can take from these European elections and watching out for the ECB over the course of the next 48 hours for any signs or smoke signals for next week’s decision,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “If we continue to make the assumption that there could be a more expansive policy framework from the ECB being unveiled next week then it still seems to be the case that euro rallies are going to be sold into.”
Swedish retail sales increased 0.3 percent last month after climbing a revised 1 percent in March. The median forecast in a Bloomberg survey of economists was for a 0.5 percent drop.
The krona gained 0.4 percent to 6.6215 per dollar. It strengthened 0.3 percent to 9.0342 per euro.
The BOJ’s Iwata spoke after policy makers refrained from expanding stimulus measures last week. Minutes of the central bank’s April 30 meeting showed members said the impact of the nation’s first sales tax increase since 1997 had been “broadly in line with expectations.”