Euro Falls to 3-Month Low on German Unemployment Gain

The euro fell to a more-than-three-month low against the dollar as German unemployment unexpectedly increased this month and euro-area lending contracted, boosting the case for more European Central Bank stimulus.

Europe’s shared currency weakened after a measure of money supply in the 18-nation region, known as M3, grew less than estimated, stoking speculation the ECB will cut interest rates when policy makers meet on June 5. The yen strengthened against most of its major peers as U.S. Treasury yields declined. New Zealand’s dollar weakened against all of its 16 major peers as a measure of business confidence fell. Russia’s ruble led gains among the 31 major currencies this month.

“What we’re seeing is continued focus on the increasing likelihood of policy easing next week from the central bank,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “I don’t expect a major rebound ahead of the ECB meeting.”

The euro dropped 0.3 percent to $1.3591 at 5 p.m. New York time, after sliding to $1.3589, the least since Feb. 13. The 18-nation common currency weakened 0.5 percent to 138.42 yen. The dollar lost 0.1 percent to 101.85 per yen.

Technical Levels

The 18-nation currency fell below $1.3641, the 200-day moving average, for a fourth day. The 14-day relative strength index fell to 27.8, below the 30 level that signals to some traders an asset has declined too far, too fast, and may be due to reverse course.

“For euro-dollar, the heavy price action continues to develop following the break of the 200-day moving average,” Niall O’Connor, a technical analyst in New York at JPMorgan Chase & Co., wrote in a note today. “Support in the $1.3600 area will be the key initial test now, before the $1.3477 February low.”

The ruble has gained 3.2 percent against the dollar this month, followed by Chile’s peso with a 2.5 percent rally, according to data compiled by Bloomberg. The Czech koruna dropped 2.2 percent, the biggest loser.

A gauge of volatility in Group of Seven currencies fell to almost the lowest in seven years. JPMorgan Chase & Co.’s volatility index for the currencies of the G-7 nations was at 6.14 percent. It touched 6 percent on May 9, the lowest level since 2007.

Pound Drops

The British pound fell 0.6 percent to $1.6711 per dollar and touched its lowest level in six weeks after data yesterday showed mortgage approvals declined in April. The Bank of England reviews key rates next week.

“We’ve seen a pretty abrupt selloff in the pound,” said Commonwealth’s Esiner. “If this data is a signal that the housing recovery is stalling in the U.K., then it might give the BOE more room to maintain its easing stance.”

The kiwi reached the lowest in more than two months against the greenback as ANZ Bank New Zealand Ltd. said a net 53.5 percent of companies surveyed this month expected the economy would improve over the next 12 months, down from 64.8 percent in April.

“Kiwi’s just been whacked obviously by that ANZ business confidence survey,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It fits into a solidifying theme of the Reserve Bank likely to hike less than what looked likely a few weeks ago.”

New Zealand’s currency fell 0.8 percent to 84.94 U.S. cents after sliding to the least since March 12.

Treasury Yields

Treasury 10-year yields dropped seven basis points, or 0.07 percentage point, to 2.44 percent, reaching the lowest level since July, according to Bloomberg Bond Trader prices.

“U.S. 10-year yields played into” the rise in the yen, Fabian Eliasson, foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a phone interview. “It’s been difficult for the market to sustain levels above 102.”

The number of people out of work in Germany rose 23,937 to 2.91 million in May, the Nuremberg-based Federal Labor Agency said today, the first increase in six months. Economists surveyed by Bloomberg forecast a decline of 15,000.

Projections the ECB will reduce borrowing costs to spur inflation and boost growth have driven the euro lower this week. Twenty-three of the 39 economists surveyed by Bloomberg predict the central bank will cut its benchmark interest rate from 0.25 percent when policy makers gather next week in Frankfurt.

Draghi View

“What we need to be particularly watchful for at the moment is, in my view, the potential for a negative spiral to take hold between low inflation, falling inflation expectations and credit, in particular in stressed countries,” ECB President Mario Draghi said on May 26.

ECB data showed bank lending in the euro area shrank 1.8 percent in April from a year earlier, the 24th straight month of declines. Lending increased 0.2 percent from March. The growth in M3 money supply slowed to 0.8 percent from 1 percent. Analysts forecast the figure would be 1.1 percent.

“The euro is impacted by data,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. Trading weaker than $1.36 is “a strong psychological level. We need to take that level out to encourage more downside,” he said.

The euro has declined 1.2 percent in the past month, the worst performer after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.6 percent and the yen advanced 1.4 percent.

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