Euro Holds Lower Before PMI Seen Boosting Case for ECB Stimulus

The euro remained lower after falling yesterday, with a Purchasing Managers Index due tomorrow forecast to show manufacturing in the region contracted for the first time in 16 months, adding to the case for more stimulus.

The 18-nation currency slid the most in a week yesterday as billionaire hedge-fund manager David Tepper said investors should sell it because of the European Central Bank’s policies. Australia’s dollar erased declines as data showed annual consumer-price gains slowed in line with economists’ forecasts. The U.S. dollar is little changed this week against major peers ahead of a report that may signal consumer prices stagnated in September after declining the previous month.

“The risks to the PMIs is for more disappointment and I can see the euro heading back down again,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The euro may find support around the $1.26 level.”

The euro was at $1.2726 as of 6:37 a.m. in London after falling 0.7 percent yesterday to $1.2716, the biggest drop since Oct. 14. It was little changed at 136.16 yen, following yesterday’s 0.6 percent slide. The dollar bought 107 yen after strengthening 0.1 percent over the previous two days.

The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 major counterparts, was little changed at 1,064.00.

ECB Buying

The euro has dropped 0.6 percent in the past week, according to Bloomberg Correlation-Weighted Indexes which track 10 developed-nation currencies. The dollar gained 0.4 percent and the yen fell 0.7 percent.

Euro-area manufacturing PMI slid to 49.9 in October from 50.3 in September, signaling a contraction, Markit Economics is forecast to say tomorrow, according to a Bloomberg News survey. A gauge of services activity slowed to 52 from 52.4, indicating the least growth since January, the poll showed.

The euro snapped a four-day gain versus the yen yesterday as the ECB bought covered bonds for a second day and Reuters reported the central bank is considering corporate-debt purchases.

The ECB could make a decision on adding corporate bond purchases to its easing measures as soon as December, Reuters reported, citing several unidentified people familiar with the situation. A spokesman for the central bank told Reuters “the Governing Council has taken no such decision.”

Aussie CPI

The Aussie was little changed, reversing a decline of as much as 0.4 percent, after the statistics bureau said the consumer price index gained 2.3 percent in the third quarter from a year earlier, in line with the median forecast in a Bloomberg survey, slowing from 3 percent in the previous period. It rose 0.5 percent in the third quarter from the previous three months.

“Given that big market moves lately have been driven from offshore, we needed a big non-consensus number to get any decent market reaction,” said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore. “RBA is firmly on the sidelines for now,” she said referring to the Reserve Bank of Australia.

Australia’s dollar bought 87.89 U.S. cents from 87.79 yesterday. Beacher said she expects the Aussie to rise to 90 at year-end.

Fed Bets

A report due today in the U.S. is projected to show consumer prices stagnated in September after falling 0.2 percent in August, a separate Bloomberg survey predicts. From a year earlier, they rose 1.6 percent following a 1.7 percent advance the prior month.

Concern about a strong dollar and slowing global growth has prompted traders to temper expectations of when the Federal Reserve will increase its benchmark rate. Futures show bets on an October 2015 increase at 46 percent from 85 percent at the end of September.

“Dollar-yen has retreated a bit on the back of receding Fed rate-hike expectations and the global risk-off move,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “Still, it’s difficult to say that we’re suddenly returning back to a scenario where expectations grow that the Fed will raise rates.”

The dollar has dropped 2.9 percent versus the yen since reaching a six-year high on Oct. 1.

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