Euro at Almost 3-Month Low on Italy, Economic Data; Aussie Drops

The euro traded at the lowest level against the dollar in almost three months as Italy moved toward more elections and before data forecast to show the region’s economy shrank in the fourth quarter of 2012.

The yen rose against most of its 16 major peers as China’s CSI 300 Index of equities dropped by the most in two years, boosting demand for haven assets. Australia’s dollar sank to an almost eight-month low against its U.S. equivalent after building approvals declined. The Dollar Index traded at almost its highest level since August. European Central Bank policy makers, led by President Mario Draghi, will meet on March 7.

“The market is still very neutral on the euro,” Greg Anderson, New York-based head of Group of 10 currency strategy at Citigroup Inc., said in a telephone interview. “We’re sitting back and waiting to see what happens coming out of the ECB meeting. Most people are looking at it like easing is just around the corner, and I think that gives the euro a slightly heavy tone.”

The euro was little changed at $1.3026 at 5 p.m. New York time, after touching $1.2967 on March 1, the lowest level since Dec. 11. The yen gained 0.1 percent to 121.77 per euro and was up 0.1 percent to 93.48 per dollar.

Key Levels

The shared currency may decline to $1.2843, its lowest level since Nov. 22, after falling below a key support level on March 1, Cilline Bain, a London-based technical analyst at Credit Suisse, wrote today in a note to clients. A drop past $1.2843 might cause a decline to $1.2662, which would be the euro’s weakest since Nov. 13, he said.

The Norwegian krone strengthened the most in a week amid speculation the currency’s plunge to a seven-month low was overdone. It appreciated 0.7 percent, the most since Feb. 25, before trading at 5.7127.

South Korea’s won fell the most in a month as slowing services and manufacturing growth in China damped the country’s export outlook. The currency declined 0.8 percent, the most since Feb. 8, to 1,093.55 per dollar before trading at 1,093.24.

The Australian dollar fell after an unexpected drop in home-building approvals in January added to speculation the Reserve Bank will cut interest rates this year. The so-called Aussie slid 0.1 percent to $1.0196, after falling to $1.0115, the weakest level since July 12.

Dollar Measure

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six U.S. trading partners, was decreased 0.2 percent to 82.178. It reached 82.509 on Feb. 1, its highest level since Aug. 20.

Options traders are the most bullish on the dollar in 2013 out of 17 major currencies tracked by Bloomberg, according to one-year 25-delta option risk reversal rates. Traders are paying a 1.69 percent premium in favor of dollar calls, or the right to buy the greenback versus the euro, relative to puts, which allow for sales.

“People are rationalizing where they want to be positioned throughout the mass of event risk this week and probably the way to play it is with a long-dollar bias,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The ECB’s language will be monitored very closely.”

The euro weakened last week after Italy’s electorate revolted against outgoing Prime Minister Mario Monti’s austerity measures, handing the party of comedian-turned-politician Beppe Grillo more than 25 percent of the vote with its anti-spending-cut message and a call for a referendum on euro membership.

Economic Data

The euro area’s gross domestic product fell 0.6 percent in the fourth quarter from the previous three-month period, according to the median estimate of 37 economists surveyed by Bloomberg News before the data on March 6.

“What Europe is faced with is growth numbers that aren’t attractive, unemployment that’s getting worse and the Italian situation which remains unclear,” said Alex Sinton, director of institutional foreign exchange at Australia & New Zealand Banking Group Ltd. in Auckland.

The euro needs to weaken to between $1.10 and $1.15 to give “oxygen” to the European economy, French Industry Minister Arnaud Montebourg said in a Europe 1 radio interview broadcast yesterday.

Italy, Germany and France will report monthly purchasing manager index figures tomorrow.

“Europe is being mainly driven by all the news we have on the policy and economic side,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “The end game following the Italian election isn’t exactly clear-cut yet. Most economies in Europe are expecting a slight downgrade in PMI tomorrow, which is weighing on the euro.”

The shared currency has fallen 1.7 percent in the past month, the second-worst performer among 10 developed market currencies measured by Bloomberg Correlation-Weighted Indexes, after the Norwegian krone. The dollar gained 3 percent in the past month, the second-best performer in the Bloomberg indexes behind the yen.

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