Euro Approaches One-Year Low Versus Dollar Before ECB DecisionDavid Goodman
The euro approached the weakest level in almost a year against the dollar amid speculation European Central Bank policy makers will give further details of additional stimulus after meeting today.
The dollar headed toward its strongest level in almost eight months versus the yen before data this week forecast to show signs of growth in U.S. jobs and services, supporting bets the Federal Reserve will raise interest rates. The yen fell versus all of its 16 major peers as Bank of Japan Governor Haruhiko Kuroda said a stronger dollar wasn’t particularly negative for the nation. Sweden’s krona gained as policy makers kept interest rates unchanged.
“The market is looking for the ECB and BOJ to raise stimulus down the line, and the Fed to reduce it,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. The foreign-exchange market is acting accordingly. The U.S. economy is looking better, and global confidence in U.S. assets both as a haven and an investment remains healthy.’’
The euro slid 0.1 percent to $1.3135 as of 12:13 p.m. London time after reaching $1.3110 on Sept. 2, the weakest since Sept. 6, 2013. The dollar gained 0.2 percent to 104.97 yen after touching 105.31 yen yesterday, the highest since Jan. 10. The euro was little changed at 137.89 yen.
Fifty-one of 57 economists surveyed by Bloomberg News expect the ECB to hold interest rates at a record-low 0.15 percent today, with the remainder calling for a 10 basis-point cut. Policy makers will embark on purchasing bonds under the quantitative-easing stimulus strategy this year or next, according to 44 percent of respondents in a Bloomberg survey last month.
Most of the fundamentals supporting a weaker euro, cited by ECB President Mario Draghi at the central bank’s previous meeting, provide the ECB with grounds to hold back on immediate action, given that he said the conditions showed existing measures are working, Bloomberg strategist TJ Marta wrote in a note yesterday. The metrics Draghi flagged included Euribor,
The euro “is facing additional upside risk in reaction to today’s ECB monetary policy announcement,” Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment banking unit in London, wrote in an e-mailed note to clients today. “At this point it appears premature to expect the central bank pre-announcing more aggressive policy measures such as quantitative easing.”
There’s a 44 percent chance Fed policy makers will increase the benchmark interest-rate target by June 2015, compared with a 36 percent likelihood on Aug. 18, according to futures data compiled by Bloomberg. U.S. policy makers have kept their key rate near zero since December 2008 to spur growth.
The dollar has gained 1.3 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro fell 1.2 percent and the yen dropped 1.3 percent.
A report by ADP Research Institute due today will show gains in U.S. payrolls accelerated last month, according to economists surveyed by Bloomberg News. The Labor Department will say tomorrow that companies boosted payrolls in August by more than 200,000 for a seventh-straight month, a separate Bloomberg survey showed.
Expansion in U.S. service industries held near the fastest pace since 2005 in August, analysts surveyed by Bloomberg predicted before today’s Institute for Supply Management’s report.
“U.S. economic data has been good, and the Fed’s shift from ending quantitative easing to tightening is becoming more certain,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “As the Fed’s rate hike comes in sight, the dollar will strengthen.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, rose 0.1 percent to 1,032.74 after reaching to 1,035.06 yesterday, the highest since Jan. 23.
The yen weakened as the Bank of Japan kept its record stimulus unchanged at the conclusion of a two-day meeting. The central bank maintained its pledge to increase the monetary base at an annual pace of 60 trillion yen to 70 trillion yen, it said in a statement, in line with all 31 economist forecasts in a Bloomberg survey.
It is not surprising if the dollar rises against yen on differing monetary policies in Japan and the U.S., BOJ Governor Kuroda said today in Tokyo. The central bank will adjust policy if needed, he said.
“The divergence in monetary policies in the U.S. and Japan is crystal clear,” said Daisaku Ueno, the Tokyo-based chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “If we see jobs growth over 300,000 in the U.S., the dollar is likely to break this year’s high.”
Sweden’s krona gained as the nation’s central bank left its main interest rate unchanged in a bet that its surprise half-point cut in July will be enough to revive inflation in the largest Nordic economy. The Riksbank kept the repurchase rate at 0.25 percent, as predicted by all 15 analysts surveyed by Bloomberg.
The krona appreciated 0.2 percent to 9.1954 per euro and was little changed at 7.005 per dollar.