Euro Weakens Versus Most Peers on Economic Concern; Real Climbs

The euro fell against most of its 16 major counterparts as below-forecast European business data fueled speculation that the region’s economy may struggle further to recover.

The shared currency pared losses versus the dollar as European Central Bank President Mario Draghi didn’t signal additional monetary stimulus. The euro slid earlier as a German report showed business confidence fell more than forecast. Reuters reported European Commission official Antonio Tajani as saying the euro was too strong. Brazil’s real climbed on bets yesterday’s credit-rating cut will be the only one this year.

“It seems to be building up a composite story of weaker trend in the business surveys for Germany in March, and that on its own was enough to send euro lower,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp., said in a phone interview. “The market got itself very short of euro, and it didn’t quite see the dramatic talking down of the euro by Draghi some might have thought would happen.” A short position is a bet a currency will fall.

The 18-nation currency declined 0.1 percent to $1.3826 at 5 p.m. New York time after dropping as much as 0.6 percent earlier. It touched $1.3967 on March 13, the highest since October 2011. The euro fell 0.1 percent to 141.39 yen. Japan’s currency was little changed at 102.26 per dollar.

ECB policy makers, who lowered their benchmark interest rate to 0.25 percent in November, meet next week.

Real Strengthens

The real gained versus most major peers. While Standard & Poor’s cut Brazil to its lowest investment grade of BBB-, it shifted the outlook on the nation to stable from negative.

The Brazilian currency climbed as much as 1 percent to 2.2988 per dollar, the strongest intraday level since Nov. 27, before trading at 2.3113, up 0.5 percent.

An equally weighted basket of the so-called BRICS emerging-market currencies, those of Brazil, Russia, India, China and South Africa, rallied against the dollar to the highest level since Jan. 10. The gain took place amid growing investor optimism toward riskier assets. The Standard & Poor’s 500 Index of stocks rose 0.4 percent.

India’s rupee advanced for a third day amid optimism a new government will spur growth. The opposition Bharatiya Janata Party is leading in opinion polls before elections due to start next month. Exchange data showed overseas investors boosted their holdings of the nation’s stocks and bonds by $3.5 billion this month.

‘Positive Time’

“Overall fundamentals are improving for India, and there’s a market perception that a BJP win could be good for inflows,” said Hamish Pepper, a strategist at Barclays Plc in Singapore. “This is a very positive time for the rupee.”

The Indian currency rose 0.5 percent to 60.48 per dollar after appreciating to 60.4275, the strongest since Aug. 1.

Australia’s dollar advanced as a measure of currency volatility was at almost the lowest level in 15 months, underpinning demand for higher-yielding assets.

Deutsche Bank AG’s Currency Volatility Index, based on three-month implied volatility on nine major currency pairs, was at 7.12 percent, after closing yesterday at 7.02 percent, the least since Dec. 17, 2012. The average over the past year is 8.58 percent.

The Aussie gained 0.4 percent to 91.66 U.S. cents and reached 91.74 cents, the highest level since Nov. 26.

German Economy

The euro dropped earlier after the Ifo Institute’s German business climate index, based on a survey of 7,000 executives, fell to 110.7 in March after increasing to 111.3 the previous month, the highest level since July 2011. Economists predicted a decline to 110.9, according to a Bloomberg News survey. Germany is Europe’s biggest economy.

Markit Economics said yesterday its gauge of German manufacturing dropped to 53.8 this month, from 54.8 in February. Economists predicted a reading of 54.5 in the purchasing managers’ index, according to a Bloomberg survey.

Draghi said in a speech in Paris the ECB’s accommodative monetary policy should be increasingly felt throughout the euro-region economy.

“I expect monetary policy to regain influence over the economic cycle, and our accommodative stance to support a gradual closing of the output gap in the coming years,” Draghi said. “If any downside risks to this scenario appear, we stand ready to take additional monetary policy measures that ensure our mandate is fulfilled. In other words, we will do what is needed to maintain price stability.”

Bundesbank President Jens Weidmann said the exchange rate doesn’t warrant policy action. He told foreign reporters in Berlin the risk of deflation in Europe is “very low” even as it’s too early to say that the region’s debt crisis is over.

Not Strong

“Draghi’s comments were lacking in dovish delivery,” said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. “Not really strong stuff.”

The euro trading at almost $1.40 hurts the economies of Spain, Italy, France and, in the long run, Germany, Reuters quoted European Commission vice-president for industry Tajani as saying earlier at a conference in Milan

The 18-nation currency has strengthened 8.2 percent in the past year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 0.2 percent, and the yen tumbled 8.9 percent.

Russia’s currency gained for a third day as companies bought it to meet a tax deadline and amid bets Western nations won’t increase sanctions over the country’s annexation of Ukraine’s Crimea region.

The ruble climbed 1.5 percent to 41.6649 against Bank Rossii’s target basket of dollars and euros.

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