Euro Drops as Portugal’s Jobless Rate Climbs Before GDP Report

The euro fell against most major peers as Portugal’s jobless rate rose to the highest in the shared currency’s history before a report forecast to show the region’s economy shrank at a faster pace last quarter.

The yen fluctuated against the dollar and euro after Bank of England Governor Mervyn King said currencies should be allowed to fluctuate based on monetary-stimulus measures, allaying concern the Group of 20 would criticize Japan for weakening its exchange rate. The pound slumped after the Bank of England said risks to the U.K.’s economic recovery were weighted to the downside. Sweden’s krona rallied after the central bank kept interest rates unchanged.

“If the data shows the contraction is getting deeper, the economy is deteriorating -- that could see growth concerns resurface,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “The focus has been on monetary policy, improving financial conditions, with the economy in the backdrop.”

The euro was little changed at $1.3452 at 5 p.m. in New York. The shared currency lost 0.1 percent to 125.64 yen. Japan’s currency added 0.1 percent to 93.39 per dollar after sliding to 94.46 on Feb. 11, the weakest level since May 5, 2010.

Japan’s currency has tumbled 17 percent in the past three months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1.9 percent and the euro rose 4.3 percent.

Pound, Krona

The pound fell against all of its 16 most-traded peers after King said the outlook for consumer prices is higher than was forecast in November and weak productivity is boosting domestic costs. Sterling dropped 0.8 percent to $1.5542 after declining to 1.5524, the lowest since Aug. 3.

The krona climbed to a four-month high against the euro after the Riksbank refrained from monetary easing to weaken the currency. The Swedish currency rose as much as 1.4 percent to 8.4478 per euro, the strongest since Oct. 1.

The Turkish lira strengthened against a majority of its major counterparts after the current-account deficit narrowed more than analysts’ estimated in December. The currency strengthened 0.5 percent to 1.7638 per dollar and is up 1.1 percent on the greenback for the year.

Portugal Recession

Portugal’s unemployment rate increased to 16.9 percent from 15.8 percent in the third quarter, the Lisbon-based National Statistics Institute said today. That’s the fastest pace in a year. Prime Minister Pedro Passos Coelho’s government predicts joblessness of 16.4 percent in 2013 as the country struggles to emerge from a recession headed for a third year.

“The Portugal premier sounded concerned about a sharp rise in unemployment, which is coming on the eve of tomorrow’s growth data from the euro zone,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said by telephone from Washington, D.C.

The euro-area economy will shrink at a faster pace last quarter, the median forecast in a Bloomberg News Survey showed. Economists predict the 17-nation economy will contract by 0.4 percent, after reversing 0.1 percent last quarter.

The euro advanced earlier after the European Union’s statistics office said industrial production in the currency bloc increased 0.7 percent in December from the previous month, when it fell a revised 0.7 percent. Economists forecast a gain of 0.2 percent, according to a Bloomberg News Survey.

El-Erian’s View

Markets are trying to “navigate the reality that everybody is trying to devalue their currencies,” Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., said today in a Bloomberg Television interview with Betty Liu. “There is too much reliance on central banks, and currencies are the collateral damage.”

The yen was mixed versus its major counterparts after the Bank of England’s King said at a press conference in London “when countries take measures to use monetary stimulus to support growth in their economy, then there will be exchange-rate consequences and they should be allowed to flow through.”

Group of Seven finance ministers and central-bank governors released a statement yesterday that appeared to signal acceptance for a weaker yen, so long as Japanese Prime Minister Shinzo Abe’s government doesn’t actively pursue devaluation.

This position was later challenged when an unidentified official from a G-7 nation issued a clarification saying the group was concerned about excessive moves in the yen and Japan’s practice of giving guidance on its value.

Finance ministers and central bankers from the G-20, which includes the G-7 and emerging markets such as Brazil, China and India, meet in Moscow on Feb. 15-16.

“Dollar/yen is not going anywhere until we found out what happens at the G-20 meeting,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “That will be the catalyst.”

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