Euro Falls Second Week on Signs ECB Policy to Diverge With Fed

  • ECB cuts inflation forecasts, raises cap on bond purchases
  • Dollar advances for second week before U.S. payrolls Friday

The euro headed for its first two-week decline against the dollar since July after the European Central Bank cut its economic forecasts and signaled it may expand stimulus.

The 19-nation common currency weakened against all of its 16 major counterparts Thursday after the ECB raised the limit on bond purchases per issue under its quantitative-easing program and President Mario Draghi said that officials are willing, ready and able to act. A gauge of the dollar climbed for a second week before U.S. payrolls on Friday that will help investors weigh whether the U.S. economy is strong enough for the Federal Reserve to raise interest rates this year. The Australian dollar dropped to a six-year low, while the yen headed for a third weekly advance.

“The euro is weighed down by the ECB, with current unstable financial markets keeping the course of policy uncertain,” said Hiroshi Kurihara, the chief U.S. economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York.

Europe’s single currency was little changed at $1.1122 as of 12:06 p.m. in Tokyo from Thursday, when it slid as much as 1.3 percent to a two-week low of $1.1087. The euro has dropped 0.6 percent since Aug. 28 in its first consecutive weekly loss since the period ended July 3.

The Bloomberg Dollar Spot Index, which tracks the currency versus 10 major peers, was at 1,212.21 from 1,212.25 in New York, where it rose 0.3 percent. The measure has climbed 0.4 percent this week.

Market Nervousness

“There’s nervousness in the market about growth in Asia and the implications of the Fed changing policy, should payrolls be seen as clearing the way for a hike,” said Sean Callow, a strategist at Westpac Banking Corp. in Sydney. “The fact that dollar-yen in particular is looking soggy is obviously a bad sign.”

The odds for a Fed rate-increase at the September meeting were 30 percent versus 38 percent a month ago. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase.

The Aussie declined versus all 16 major peers. It fell 0.6 percent to 69.74 U.S. cents, after slumping to as low as 69.61 cents, the weakest since April 2009. The yen gained 0.4 percent to 119.62 per dollar, heading for a 1.8 percent weekly advance.

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