Euro Falls Below $1.30 on Draghi Pledge; Rupee Drops to RecordJoseph Ciolli
The euro fell below $1.30 for the first time in almost a month as European Central Bank President Mario Draghi said monetary policy will remain stimulative, dimming the relative allure of assets denominated in the currency.
The dollar remained higher versus the 17-nation currency even as Federal Reserve Bank of Richmond President Jeffrey Lacker said he expects U.S. economic expansion to remain “sluggish” for “a couple more years” and that the central bank isn’t close to reducing its bond holdings. Australia’s dollar rose as Prime Minister Julia Gillard lost a ballot for the leadership of the governing Labor party to her predecessor, Kevin Rudd. India’s rupee plunged to a record versus the dollar.
“The euro weakness today is being driven by comments from Draghi,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, in a telephone interview. “It’s all about market perception of which direction central banks are moving. The Fed is moving in a direction where they’re going to be slowing the pace of accommodation, while the ECB could still provide more, if necessary.”
The euro declined 0.5 percent to $1.3012 at 5 p.m. New York time, reaching as low as $1.2985, the weakest level since June 3. Europe’s shared currency fell 0.6 percent to 127.17 yen. Japan’s currency rose 0.1 percent to 97.72 per dollar.
The yen has gained 2.7 percent to the greenback this month, while Norway’s krone has declined 3.9 percent. This quarter, the euro has led all major gainers with a 1.5 percent increase, while the worst-performing Australian dollar has slipped 10.9 percent. The greenback is the best-performing currency in 2013 and South Africa’s rand has plunged 16.3 percent.
India’s rupee declined versus all 31 of its most-traded counterparts as investors favored the greenback based on the U.S. economic outlook. The currency depreciated 1.8 percent to 60.73 per dollar after reaching 60.77, its lowest-ever level versus the greenback.
Australia’s dollar rose after Rudd defeated Gillard in their third face-off to head Australia’s governing Labor party in three years. The currency increased 0.2 percent to 92.77 U.S. cents after touching its strongest level in a week.
The New Zealand dollar gained versus all of its major peers after reassurances from China that it will ease a credit squeeze spurred demand for higher-yielding assets. The so-called kiwi rose 0.6 percent to 77.91 U.S. cents.
The ECB’s monetary policy “will stay accommodative for the foreseeable future,” Draghi said in a speech at the French National Assembly in Paris. “We have an open mind about all other possible instruments that we may consider proper to adopt,” he said, adding that an exit remains “distant.”
The Frankfurt-based ECB cut its benchmark interest rate to a record-low 0.5 percent in May after six consecutive quarters of contraction in the 17-nation currency-bloc economy.
“It’s all about the fairly dovish comments from Draghi,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “At this point, it’s more a case of euro weakness than dollar strength. That’s driven by the shift in the relative stance of the two central banks.”
Europe’s common currency may extend declines versus the dollar after dropping below its 200-day moving average, currently $1.3073, Brooks said.
The 17-nation euro is testing support at $1.3034, Richard Adcock, a technical strategist at UBS AG in London, wrote today in a note to clients.
If the currency closes below this level, a deeper sell-off will be triggered, with the next layer of support coming at $1.2797, he said. That would be the lowest since May 17. Support refers to an area on a chart where buy orders may be clustered.
The shared currency has declined 2.8 percent against the greenback since Federal Reserve Chairman Ben S. Bernanke said on June 19 the U.S. central bank may begin paring back bond purchases this year.
U.S. gross domestic product rose at a revised 1.8 percent annualized rate in the first quarter, down from the previous estimate of 2.4 percent, the Commerce Department said. The first quarter rate was projected to hold at 2.4 percent, according to a Bloomberg News survey of economists.
Reports yesterday showed U.S. durable goods orders rose more than forecast in May and consumer confidence for June exceeded projections.
The dollar has gained 2.5 percent since June 19, according to the Bloomberg U.S. Dollar Index that represents 10 major currencies weighted by liquidity and trade flows.
The pound fell versus the greenback as Bank of England policy maker David Miles renewed his call for more asset purchases.
A “slight expansion” of the bank’s quantitative-easing program would be helpful, he told a conference in London today.
Sterling fell 0.7 percent to $1.5314.
Trading in over-the-counter foreign-exchange options totaled $38.1 billion, compared with $27.5 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yuan exchange rate amounted to $11.9 billion, the largest share of trades at 31 percent. Euro-dollar options were the second most-actively traded, at $6 billion, or 16 percent.
Dollar-yuan options trading was 181 percent above the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 50 percent above average.
Volatility in currencies surged since the Fed signaled last week it may start reducing stimulus this year. JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency-option premiums, reached 11.58 percent after rising to 11.96 percent on June 24, the highest since January 2012.
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