Euro Drops as Peripheral Bonds Fall Amid Economic Pace Concern

The euro fell against most of its major peers as investors sold peripheral government bonds amid speculation the region’s economy remains sluggish.

The 18-nation currency had the biggest two-week decline versus the dollar since November as Greek bonds fell after opinion polls suggesting its governing coalition is losing support and Portuguese securities declined as the country prepared to exit its financial bailout. European Central Bank President Mario Draghi signaled last week officials are ready to add monetary stimulus in June. India’s rupee rose as Sonia Gandhi conceded an election to Narendra Modi’s opposition bloc.

“Our arguments for selling euro-dollar remain unchanged,” MacNeil Curry, a technical strategist in New York at Bank of America Merrill Lynch, said in an e-mail. “The combination of deteriorating European assets and poor price action say the trend has turned.”

The euro declined 0.1 percent to $1.3694 at 5 p.m. New York time, after falling to $1.3648 yesterday, the least since Feb. 27. The common currency dropped 0.2 percent to 139 yen and reached 138.78, a level unseen since Feb. 12. Japan’s currency added 0.1 percent to 101.50 per dollar after appreciating to 101.32 yesterday, the strongest level since March 19.

Futures Positions

For the first time in three months, hedge-fund managers and other large speculators are betting the euro will weaken. The difference in the number of wagers on a decline in the common currency, compared with those on a rise -- so-called net shorts -- was 2,175 on May 13, compared with a net long of 32,551 a week earlier, according to data from the Commodity Futures Trading Commission.

The rupee appreciated 0.9 percent to 58.78 per dollar after touching 58.62, the strongest level since June.

Poll results showed Modi’s opposition bloc was poised for the biggest Indian election win in 30 years. The victory of the Bharatiya Janata Party is a “game changer that creates the opportunity for a super-secular shift,” London-based Pacific Investment Management Co. fund manager Masha Gordon said.

“It’s an opportunity for change supported by a very large popular mandate,” Gordon said. “This raises the chances for more decisive policy action, which reduces the chances for a sovereign downgrade.”

Yuan Declines

The yuan weakened on speculation Chinese policy makers favor steering the currency lower to boost exports.

China’s yuan positions at local financial institutions accumulated from foreign-exchange sales rose by 117 billion yuan ($18.8 billion) in April from March, the People’s Bank of China said yesterday. That signals the PBOC’s continued intervention to check yuan appreciation, according to Credit Agricole CIB.

The Chinese currency fell 0.05 percent to 6.2336 per dollar. It depreciated in four out of the past five weeks.

South Africa’s rand rallied 0.5 percent to 10.3552 versus the greenback, leading gains among the 16 major currencies.

Dollar Measure

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, fell 0.1 percent to 1,008.12, reaching the lowest level since May 12.

The pace of U.S. home construction jumped in April to its highest level since November, led by a jump in starts on multifamily projects, a government report showed. The Thomson Reuters/University of Michigan preliminary sentiment index fell to 81.8 in May from 84.1 a month earlier.

Job creation is “crucial” to the process of economic recovery and small companies “are responsible for a large share” of new employment, Federal Reserve Chair Janet Yellen said yesterday in Washington in the text of remarks prepared for a speech to owners of small companies and officials from the U.S. Small Business Administration.

Minutes of the Fed’s April 29-30 meeting, when policy makers decided to pare their monthly bond purchases to $45 billion, will be released next week.

Weekly Performance

The euro dropped 0.8 percent versus the yen and a 0.5 percent decline against the dollar this week.

Greece’s 10-year yield rose five basis points to 6.86 percent amid concern political turmoil will derail reforms in the country that sparked the sovereign-debt crisis. Portugal’s 10-year yields added four basis points to 3.74 percent.

“The story is a bearish one for the euro,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said by phone. “There’s scope to build up euro shorts. We see the market starting to position that way starting last week.” A short position is a bet that an asset will decline in value.

A report showed yesterday euro-area gross domestic product rose 0.2 percent in the three months through March, half as much as economists forecast and matching growth in the fourth quarter.

The shared currency is down 1.4 percent this year among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 1 percent while the yen gained 3.1 percent.

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