Euro Slides as Weak German Output Data Reawaken QE Speculation

  • Shared currency falls versus most major counterparts
  • German industrial production declines 1.2% in August

The euro fell against most major counterparts after data showed German industrial production unexpectedly declined in August, adding to signs that weaker emerging-market demand is weighing on Europe’s largest economy.

The shared currency slid versus all but two of its 16 major peers as investors weighed the potential for the European Central Bank to expand its quantitative-easing program, which tends to weaken the euro. It dropped against the yen after the Bank of Japan refrained from adding to its already unprecedented monetary stimulus.

“If we’re dealing with a global demand shock emanating from China, the euro zone, and Germany in particular, could be quite badly exposed,” said Valentin Marinov, head of Group-of-10 currency research at Credit Agricole SA’s corporate and investment-banking unit in London. “The ECB are willing to ignore otherwise fairly supportive domestic data and focus on external negatives,” and are being “quite selective in their approach.”

“And in that, they are clearly targeting the currency,” he said.

The euro fell 0.3 percent to $1.1237 at 5 p.m. New York time. It slid 0.5 percent to 134.86 yen, having climbed the previous four days. The Japanese currency strengthened 0.2 percent to 120.01 per dollar.

Risk Rebound

Some of the shared currency’s biggest declines came against high-yielding commodity currencies such as the New Zealand dollar, which benefited as oil reached its highest level since July. The euro touched its lowest since August against the New Zealand dollar.

"The market is kind of still going through a rebound in risk sentiment -- that’s weighing on the euro as a funding currency," said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. With the Federal Reserve holding off on raising interest rates, "there’s a better feeling about emerging markets.”

ECB policy makers have helped push the euro down from as high as $1.3993 in May 2014 with their 1.1 trillion euro ($1.2 trillion) asset-purchase plan to stimulate the region’s economy. The currency has been in a range of around $1.05 to $1.15 for much of this year.

German industrial output, adjusted for seasonal swings and inflation, fell 1.2 percent in August after a revised increase of 1.2 percent a month earlier. The reading compared with a median estimate for a 0.2 percent gain in a Bloomberg survey of economists.

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