Euro Touches 2-Week Low on Slowdown Signs; Yen Pares Gain

The euro touched a two-week low against the dollar on signs the region’s economy is slowing amid political uncertainty in Italy and Spain.

The 17-nation currency held a three-day loss versus the yen before data forecast to show industrial production in France fell and with finance chiefs from the bloc set to meet in Brussels to discuss aid to Cyprus and Greece. The yen trimmed earlier gains against the U.S. currency after Haruhiko Kuroda, one of the potential candidates to head the Bank of Japan, said additional monetary easing can be justified for 2013. The central bank holds a policy meeting this week.

“There’s negative momentum behind the euro at the moment,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. “You have more European risks apparent than a month ago.”

The euro touched $1.3325, the lowest since Jan. 24, before trading at $1.3384 at 6:10 a.m. in London, 0.2 percent above the close at the end of last week in New York. The shared currency was little changed at 123.92 yen, after losing 2.6 percent in the past three sessions. The Japanese currency traded at 92.59 per dollar from 92.68, after earlier gaining as much as 0.3 percent.

Industrial production in France, Europe’s second-largest economy, probably declined 0.2 percent in December from the previous month, when it rose 0.5 percent, according to the median estimate of economists surveyed by Bloomberg News before the statistics office releases data today.

Political Uncertainty

European finance chiefs will seek to win back crisis-management momentum after markets signaled last week that the three-year crisis is far from over. Ministers from the 17-member euro area meet in Brussels today.

Spanish Prime Minister Mariano Rajoy has faced calls to resign after newspaper reports alleged he accepted illegal cash payments. Opinion polls have shown former Italy Premier Silvio Berlusconi, who was convicted of tax fraud last October, closing the gap on front-runner Pier Luigi Bersani ahead of elections on Feb. 24-25.

The yen pared gains before the BOJ announces its monetary policy decision on Feb. 14. Governor Masaaki Shirakawa said last week he will step down with two of his deputies on March 19, about three weeks before his term is due to end.

Kuroda, president of the Asian Development Bank, said in an interview in Tokyo today the BOJ has “many” policy tools to achieve its 2 percent inflation target. Credit Suisse Group AG Chief Japan Economist Hiromichi Shirakawa has said Kuroda is “the leading candidate” to succeed Shirakawa.

Excessive Decline

The yen was supported after technical indicators signaled recent declines were excessive. The yen’s 14-day relative strength index against the dollar was at 32 on Feb. 8, near the 30 level some traders see as a sign an asset’s price may reverse direction after falling too rapidly. The yen’s RSI versus the euro was at 39.

The yen’s 14 percent drop against the U.S. dollar in the past three months has spurred criticism from South Korea to Russia that Japan is competitively devaluing its currency. Finance ministers and central bank governors from the Group of 20 nations are scheduled to gather in Moscow Feb. 15-16.

Finance Minister Taro Aso said on Feb. 8 the currency has been dropping too rapidly before Group of 20 finance chiefs meet this week. “The yen’s sudden move from 78 or 79 to 90 was not something we anticipated,” he said.

The dollar-yen rate has reached a short-term peak, according to Australia & New Zealand Banking Group Ltd.

Currencies Discussed

“The G-20 at the end of the week is likely to see some discussions of currencies, which could make yen shorts nervous,” Richard Yetsenga, head of global markets research at ANZ, wrote in a note today.

Futures traders decreased bets the yen will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 68,413 on Feb. 5, compared with net shorts of 71,246 a week earlier.

“Positioning in the yen got too stretched, and it looks as though it needs a little bit of a correction before it can proceed lower,” said Westpac’s Speizer. “We’re going to have mixed rhetoric from the politicians, which has given the yen quite a lot of volatility.”

Aussie Weakens

The Australian dollar traded near the lowest since October. The statistics bureau said in Sydney today the number of loans granted to build or buy houses and apartments declined 1.5 percent in December from the previous month when they fell a revised 0.7 percent.

“Today’s data is quite soft,” National Australia Bank Ltd. economist Spiros Papadopoulos wrote in a note today. “Further gains in house prices will be hard to come by in coming months, and also confirms to us that further interest-rate cuts will be required to boost overall housing activity.”

Reserve Bank of Australia Governor Glenn Stevens and his board kept the overnight cash rate target at 3 percent on Feb. 5. Stevens said the inflation outlook “would afford scope to ease policy further.”

The Aussie declined 0.2 percent to $1.0303 after completing four weeks of declines. It touched $1.0256 last week, the lowest since Oct. 23. New Zealand’s dollar depreciated 0.2 percent to 83.38 U.S. cents.

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