Euro Drops to 14-Month Low Amid Stimulus Speculation

The euro dropped below $1.28 for the first time in 14 months after a report showed German business confidence fell more than forecast, fueling bets the European Central Bank will add further monetary stimulus.

The shared currency fell versus most of its 31 major peers after ECB President Mario Draghi said the exchange rate is in line with the divergence of monetary policy in Europe from other countries. The Bloomberg Dollar Spot Index rose to a four-year high as U.S. new-home sales climbed in August, bolstering the case for the Federal Reserve to raise rates. Brazil’s real and Russia’s ruble led gains versus major peers.

“We’re absolutely bearish on the euro,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “It used to be that you could hail Germany as the shining star, but that’s not the case anymore.”

The euro fell 0.5 percent to $1.2780 at 5 p.m. New York time and reached $1.2774, the lowest since July 2013. It sank 0.4 percent to 139.36 yen and touched 139, the lowest since Sept. 17. The yen gained as much as 0.4 percent to 108.46 per dollar before trading at 109.04, down 0.1 percent. It depreciated to 109.46 on Sept. 19, the weakest since 2008.

Brazil’s real climbed versus its 31 major counterparts, gaining for the first time in six days to lead the currencies of commodity-exporting nations higher. It rallied 1.2 percent to 2.3833 per dollar after touching a seven-month low of 2.4174.

‘Beaten Up’

“Risk appetite has stabilized a touch,” said Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. “A lot of these commodity emerging-market currencies have been beaten up quite a bit in the last few weeks. So at some point you’re going to get something of a bit of a reversal.”

The Australian dollar rose for the first time since Sept. 18, and the New Zealand dollar strengthened from almost the lowest in a year. The Aussie advanced 0.5 percent to 88.85 U.S. cents, and the kiwi appreciated 0.3 percent to 80.77 cents after reaching 80.42 cents yesterday, the weakest since September 2013.

Russia’s currency rallied after the Finance Ministry sold out its first debt auction in 10 weeks. The ruble advanced 1.2 percent to 38.1500 per dollar.

The Japanese currency reached the strongest in a week against the euro after Jiji News reported Prime Minister Shinzo Abe expressed concern about how the weakening of the yen affects local economies. Abe wants to be “careful” about the impact, the news service reported.

The yen fell 5.6 percent in the past year versus nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback rose 5.4 percent, while the euro weakened 0.6 percent.

Euro Drops

The euro fell after Germany’s Ifo institute said its business climate gauge slid to 104.7, the lowest since April 2013, from 106.3 in August. The report followed purchasing-managers’ indexes yesterday that showed growth in euro-area manufacturing and services slowed this month.

Barclays Plc said in a note it’s betting the shared currency will fall to $1.2094. The company said it gained 3.5 percent on a previous euro trade that targeted $1.2815.

“The euro is going to continue to drift lower,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “As a consequence of a weaker Germany, by definition the euro zone is appreciably weaker too, and it just puts a further onus on the ECB.”

Fed, ECB

The weakening of the currency “reflects the different path of monetary policies in Europe,” the ECB’s Draghi said in an interview with Europe 1 Radio published on the central bank’s website. The ECB has cut interest rates to record lows and is pursuing monetary stimulus, while the Federal Reserve is considering when to raise rates for the first time since 2006.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, increased 0.2 percent to 1,059.53, the highest on a closing basis since June 2010. The measure has risen 5.6 percent since June 30, set for the biggest quarterly gain in three years.

Sales of new houses in the U.S. jumped 18 percent to a 504,000 annualized pace, the strongest since May 2008, the Commerce Department reported today in Washington.

“It seems that there’s little to stop the dollar other than the market’s own exuberance,” Steve Barrow, the head of Group-of-10 strategy at Standard Bank Plc in London, wrote in an e-mailed note. “The trend is definitely your friend right now and periods of dollar weakness merely provide better levels to buy the currency.”

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