Euro Weakens Versus Major Peers on Rate-Cut Bets; Pound Advances

The euro weakened against most major counterparts on speculation the European Central Bank will cut its record-low benchmark interest rate further next week as the region’s economy slumps.

The yen pared its first gain in three days versus the dollar as an increase in risk appetite damped the Japanese currency’s appeal as a haven. U.S. stocks rose after fewer Americans than forecast filed first-time claims for jobless benefits last week, pointing to an improving labor market. The pound climbed after data showed the U.K. economy expanded last quarter, ensuring the nation avoided a triple-dip recession.

“The economic data in Europe, and specifically in Germany, has been pretty disappointing,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman. More ECB easing “could weigh on the euro, even though it’s likely to have a minimal impact on real economic activity.”

The euro fell as much as 0.2 percent to $1.2989 before trading little changed at $1.3011 at 5 p.m. in New York. It strengthened 0.6 percent earlier. The Japanese currency appreciated 0.3 percent to 99.26 per dollar after gaining 0.5 percent earlier. It touched 99.95 on April 11, the weakest level in four years. The euro declined 0.3 percent to 129.14 yen.

The 17-nation currency slid 1.1 percent versus the pound to 84.30 pence. It touched 84.10 pence, the lowest since Jan. 24.

Currency Options

Trading in over-the-counter foreign-exchange options totaled $32 billion, compared with total turnover yesterday of $61 billion, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $9.1 billion, the largest share of trades at 29 percent. Options on the euro-Swiss franc were the second most actively traded, at $4.3 billion, or 14 percent.

Dollar-yen options trading was about 35 percent below the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Turnover in euro-Swiss options exceeded average readings, by more than 800 percent.

The ECB has kept its main refinancing rate at 0.75 percent since July 2012. Goldman Sachs Group Inc. said today in a note it expects a quarter-percentage-point cut to 0.5 percent at the central bank’s meeting on May 2.

Banks including Nomura International Plc, UBS AG and Royal Bank of Scotland Group Plc also forecast this week the ECB will cut the rate after gauges of European manufacturing and services for April underscored weakness. German business confidence fell after winter weather hindered the recovery in Europe’s largest economy. Spanish unemployment rose in the first quarter to 27.2 percent, the highest in at least 37 years, data showed today.

BOJ Meeting

The yen strengthened against the dollar as Japanese investors cut their holdings of overseas bonds for a sixth week, damping speculation they’re sending more funds abroad.

Bank of Japan policy makers meet tomorrow and will release an outlook for the economy and inflation. The central bank may raise its forecast for price gains for fiscal 2014, according to people familiar with the discussions. The BOJ unveiled April 4 a plan to double holdings of government bonds and stock funds in the next two years to end 15 years of deflation.

Japan will use its foreign-exchange reserves to buy holdings of listed mutual funds that invest in Asian government bonds, Nikkei reported today without attribution. The proposal will be announced May 3, the newspaper reported.

Risk Appetite

The dollar remained lower versus major peers as risk appetite improved after Labor Department data showed applications for jobless benefits fell by 16,000 to 339,000 in the week ended April 20, the lowest since March 9. Economists in a Bloomberg survey projected 350,000 claims.

Stocks rose, with the Standard & Poor’s 500 Index advancing as much as 0.9 percent before ending the day up 0.4 percent.

Sterling advanced against all of its 16 most-traded counterparts after the Office for National Statistics said gross domestic product increased 0.3 percent in the first quarter. The median forecast of economists in a Bloomberg News survey was for growth of 0.1 percent.

The pound gained 1.1 percent to $1.5434 and reached $1.5480, the strongest level since Feb. 19.

“Sterling is trading higher, and I would expect further gains,” said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank Ltd. in London. “The data puts another nail in the coffin for further money printing.”

The pound strengthened 2.2 percent in the past month against nine developed-nation peers monitored by Bloomberg Correlation-Weighted Indexes. It was the best performance. The U.S. dollar rose 0.2 percent, the euro gained 1.5 percent and the yen slid 5.2 percent.

Forint Falls

Hungary’s currency dropped against 31 most-traded peers amid bets the country’s central bank will reduce interest rates further. The forint fell for a seventh day against the euro, the longest stretch since August, declining 0.3 percent to 301.09.

South Africa’s rand gained for a third day against the dollar as precious-metals prices rebounded and after South African producer-price inflation accelerated 5.7 percent last month, more than forecast. Spot gold rose 2.5 percent to $1,467.90 an ounce after tumbling to $1,322.06 on April 16.

The rand appreciated 0.4 percent to 9.0966 per dollar.

The krone gained the most in almost three weeks against the dollar as this week’s advance in oil prices boosted the outlook for the nation’s exports. Crude oil for June delivery has gained 5.9 percent since April 19 to $93.24 a barrel in New York.

Norway’s currency climbed as much as 0.9 percent, the most since April 5, to 5.8432 per dollar before trading at 5.8714, up 0.5 percent. The krone advanced 0.5 percent to 7.6397 per euro.

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