Euro Weakens Against Dollar on Growth Concern as Pound Declines

The euro fell from near an 11-month high against the dollar after reports showed Italian industrial orders dropped and Spanish bad loans increased, adding to signs the region’s economy will struggle to expand this year.

Europe’s shared currency slipped from the highest in 20 month against the yen amid speculation its 4.7 percent gain this year has been too rapid. The Swiss franc declined to the least since May 2011 against the euro after a trade union called on the nation’s central bank to change its cap on the currency. South Africa’s rand dropped on concern labor protests will curb exports. The pound slid for a sixth day against the dollar as retail sales unexpectedly fell.

“The euro is giving back some of its gains,” said Lutz Karpowitz, a senior foreign-exchange strategist at Commerzbank AG in Frankfurt. “It went too high, too quickly. The economy is still very weak. We don’t expect the euro strength to remain.”

The euro declined 0.2 percent to $1.3356 at 7:39 a.m. New York time after appreciating to $1.3404 on Jan. 14, the strongest since Feb. 29. Europe’s shared currency rose 0.1 percent to 120.35 yen, after reaching 120.71, the most since May 2011. Japan’s currency lost 0.2 percent to 90.03 per dollar.

Europe’s shared currency will fall to $1.29 by the end of March, Commerzbank predicts.

Italian industrial orders fell 0.5 percent in November from a month earlier, a report showed today. The euro-area economy will contract 0.1 percent this year, according to analyst predictions compiled by Bloomberg. The U.S. will expand 2 percent, according to a separate survey.

Price Swings

Currency volatility rose to a five-month high, increasing the chance that price swings will wipe out profits. The JPMorgan G7 Volatility Index, derived from premiums on foreign-exchange options, rose to as much as 9.19 percent, the most since Aug. 2.

The franc appreciated 0.2 percent to 1.2457 per euro after depreciating to 1.2569, the weakest level since May 20, 2011.

Switzerland’s currency headed for a 2.2 percent weekly decline against the euro, the most since the five days ending Sept. 9, 2011, when the Swiss National Bank imposed a cap against the euro to block the franc’s appreciation.

The central bank limited the currency at 1.20 per euro to protect exporters after investors, drawn to Switzerland’s lower ratio of debt to gross domestic product than its euro-area peers, pushed the exchange rate with the euro toward parity. Demand for the refuge of Swiss francs eased at the start of this year after European policy makers took steps to contain the financial turmoil.

New Limit

“In recent days the Swiss franc has somewhat weakened against the euro and today reached a rate of 1.25 francs,” trade union Unia said in an e-mail. “Unia calls on the Swiss National Bank to immediately set this rate as the new lower limit and to defend it at all costs.”

Switzerland’s franc has tumbled 1.7 percent this year, the second-steepest decline after the yen, which slid 3.8 percent, among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.3 percent and the euro climbed 1.7 percent.

In Britain, retail sales including fuel slipped 0.1 percent from November, when they stagnated, the Office for National Statistics said today. The median forecast of economists in a Bloomberg survey was for an increase of 0.2 percent. Purchases of household goods fell the most in almost three years.

“We obviously had very weak retail sales numbers,” said Christian Lawrence, a London-based currency strategist at Rabobank International. “It’s only if we get some headlines coming out of the mouths of politicians that we’re likely to see much of a sea change in sentiment” toward sterling, he said.

The rand dropped 1.1 percent to 8.8982 per dollar, extending this week’s decline to 2 percent.

The pound fell 0.3 percent to $1.5940 and dropped 0.3 percent to 83.85 pence per euro.

Before it's here, it's on the Bloomberg Terminal.