Euro Reaches One-Year Low Versus Dollar on Economy; Yen Slumps

The euro reached the lowest level in almost a year against the dollar as signs the region’s economy is underperforming that of the U.S. damped demand for the shared currency.

Large speculators including hedge funds last week increased bets on drops in the euro versus the dollar to the most since July 2012. A report today showed euro-area manufacturing expanded at a slower pace than initially estimated, adding to the case for the European Central Bank to expand stimulus. The yen declined against all of its major counterparts before the Bank of Japan delivers its Monetary Policy Statement this week. Russia’s ruble slid to a record low.

“We’ve been maintaining a bearish view on the euro for some time,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The presumptions in that, in terms of the deteriorating fundamentals and that the ECB will do more, seem to be coming together quite well. The path of least resistance is for a cheaper euro.”

The euro was little changed at $1.3133 as of 4:48 p.m. London time after earlier touching $1.3119, the weakest since Sept. 6. The euro has declined for the past seven weeks, the longest stretch since December 1999.

The euro may drop to $1.2750 by year-end, Stretch said.

The 18-nation common currency gained 0.2 percent to 136.93 yen after falling 0.7 percent in August. The dollar rose 0.2 percent to 104.27 yen after gaining 1.3 percent last month. U.S. markets are closed for the Labor Day holiday.

Bearish Bets

The difference in the number of wagers on a decline in the euro against the dollar compared with those on a gain -- so-called net shorts -- was 150,657 on Aug. 26, the most since July 2012, according to data from the Washington-based Commodity Futures Trading Commission.

Markit Economics said today that its final August index of euro-area manufacturing dropped to 50.7 last month, the lowest level since July 2013. That compares with an earlier estimate of 50.8. Readings exceeding 50 indicate expansion.

The ECB will hold a policy meeting on Sept. 4. It may embark on quantitative easing this year or next, according to 44 percent of respondents in a Bloomberg survey last month.

“One of the big reasons why euro-dollar is going down is we’ve got talk of tightening coming out of the Federal Reserve and the opposite kind of talk coming out of Europe,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “Data out of the U.S. has been pretty good.”

Data Surprises

The Citigroup Economic Surprise Index for the euro region dropped to minus 45.10 on Aug. 29, the lowest since June 2013. It was at minus 44.60 today. A negative number means data releases have been weaker than expected. The equivalent U.S. index was at 34.60, the most since Jan. 31.

The euro slid 1.5 percent in the past month, the worst performer among the Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar rose 0.9 percent, while the yen fell 0.9 percent.

The Japanese currency declined today before the BOJ holds a two-day meeting starting on Sept. 3. Half of the 34 economists polled by Bloomberg expect the central bank to bolster record stimulus by the end of February 2015, according to a survey conducted from July 30 to Aug. 1.

Reports on Aug. 29 showed industrial production in Japan rose less than expected in July while household spending slumped and the inflation rate remained unchanged.

BOJ Outlook

“I think the cross may have been held down on Friday by month-end flows,” CIBC’s Stretch said, referring to the dollar-yen exchange rate.“Now those are out of the way we can consider the weak data on Friday and the impact that risks having upon the BOJ, as they likely downgrade their economic assessment this week.”

The ruble slid to a record against the dollar for a second day as intensified fighting in Ukraine raised the likelihood that Russia will face wider sanctions.

The currency weakened 0.5 percent to 37.321 per dollar after reaching 37.51, the weakest on record.

The Ukrainian hryvnia strengthened for a third day after Interfax reported the central bank tightened the nation’s foreign exchange market, barring the withdrawal of overseas currency on bank cards.

The hryvnia appreciated 1.5 percent to 13 per dollar, having gained 4.6 percent since Aug. 27.

Sweden’s krona dropped to a more than two-year low versus the dollar after Swedbank in Stockholm said its manufacturing purchasing managers’ index fell to 51 in August from a revised 55.1 the previous month. The median estimate in a Bloomberg News survey of analysts was for a reading of 54.8.

The krona depreciated less than 0.1 percent to 6.9974 per dollar after reaching 7.0346, the weakest level since July 2012. It declined 0.1 percent to 9.1901 per euro.

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