Euro Drops to Three-Week Low as Recession Deepens; Krone Slides
The euro slid to a three-week low against the dollar after a report showed Europe’s recession deepened more than forecast last quarter, sapping demand for the region’s assets and spurring bets on lower interest rates.
The 17-nation currency dropped for a third day versus the yen as separate data showed gross domestic product shrank in Germany and France. The yen rose against most major peers as Russia’s finance minister said Group-of-20 nations should take a stronger stance against currency manipulation. Norway’s krone sank after the nation’s central bank said it’s ready to cut interest rates.
“The weak results from the euro zone’s two core economies highlight the difficulties in growth in the overall region and suggest that a strong euro-dollar may make matters even more difficult in 2013,” Boris Schlossberg, managing director of foreign exchange at BK Asset Management, an investment advisory firm in New York, wrote today in a client note.
The euro fell 0.7 percent to $1.3363 at 5 p.m. New York time and touched $1.3315, the lowest level since Jan. 24. The shared currency slid 1.2 percent to 124.11 yen. The yen appreciated 0.6 percent to 92.88 per dollar.
The European currency strengthened 4.9 percent against the dollar over the past three months.
“The GDP data out of the euro zone was quite poor, putting the idea of a potential rate cut by the European Central Bank back on the table,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc in Stamford, Connecticut, said in a telephone interview. “The market priced in further potential for easier monetary policy coming out of the ECB, which led to a weaker euro.”
The Norwegian krone fell versus all of its 16 most-traded counterparts after Norges Bank Governor Oeystein Olsen said the central bank has room to cut interest rates further to counter gains in the currency that interfere with the inflation target. It lost 1.1 percent to 5.5370 per dollar, slipping as much as 1.4 percent in its biggest intraday drop since Jan. 15. The krone declined 0.4 percent to 7.3991 per euro.
New Zealand’s dollar, nicknamed the kiwi, climbed to the strongest in 17 months after manufacturing expanded, backing the case for the nation’s central bank to raise interest rates.
The Performance of Manufacturing Index increased to 55.2 in January from 50.4 in December, Business New Zealand and the Bank of New Zealand Ltd. said. A gauge of consumer confidence rose to the highest since June 2010, ANZ Bank New Zealand Ltd. and Roy Morgan Research said in a separate report.
The kiwi rose 0.6 percent to 85.07 U.S. cents. It reached 85.17 cents, the highest since Sept. 2, 2011.
Gross domestic product in the euro area fell 0.6 percent in the fourth quarter from the previous three months, the European Union’s statistics office said. That was the worst performance since the first quarter of 2009 and exceeded the 0.4 percent median forecast of economists in a Bloomberg News survey. Separate data showed GDP shrank 0.6 percent in Germany and 0.3 percent in France, both more than economists estimated.
Options traders were the most bearish on the euro in three months. The premium for three-month options granting the right to sell the euro against the dollar relative to those allowing for purchases reached 0.88 percentage point, the most since Nov. 14, the 25-delta risk-reversal rate shows.
The euro has strengthened 7 percent in the past six months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. It was the best performance. The dollar weakened 2.5 percent, and the yen tumbled 19 percent.
Japan’s currency advanced after Russian Finance Minister Anton Siluanov said that his country wanted more “specific” language opposing exchange-rate interference in a communique to be issued after talks among finance chiefs this week.
“The G-20 countries have always held the position that currency policy should be based on market conditions,” he said in an interview with Bloomberg Television’s Ryan Chilcote. “We should take a more specific stance on this.”
G-20 finance ministers and central bankers start a two-day meeting tomorrow in Moscow. The group will pledge in a joint statement to avoid policies that lead to competitive currency devaluations, Japan’s Asahi newspaper said, citing people familiar with the matter.
The yen has slumped over the past three months as Prime Minister Shinzo Abe pressed the Bank of Japan to introduce additional stimulus measures that tend to weaken a currency. BOJ Governor Masaaki Shirakawa and two deputies will step down next month, allowing Abe to pick leaders to implement his plan for expanded monetary easing.
“We’ll get above 95 at some point,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London, referring to the dollar-yen rate. “Whether it can really extend much further in the absence of any real policy developments, I’m less confident. If there is a watershed moment it’s probably the appointment and first action of the BOJ officials.”
The Japanese currency has traded increasingly weaker than its 200-day moving average since Nov. 14. The average was 81.56 yen today. Moving averages are seen by some traders as turning points.
The greenback gained versus the euro after initial claims for U.S. jobless benefits fell more than forecast. Claims decreased by 27,000, to 341,000 in the week ended Feb. 9, Labor Department figures showed today in Washington. The level of filings was lower than any projection in a Bloomberg survey in which the median projection was 360,000.
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