Euro Touches Two-Year Low

Currency remains weak as region’s finance ministers meet.

The euro touched its lowest level in two years before regional finance ministers gather in Brussels today to discuss crisis-fighting measures adopted by heads of government at a summit last month.

The 17-nation currency held three days of declines before European Central Bank President Mario Draghi addresses European Union lawmakers today. The Japanese currency reached a one-month high versus the euro after Japan released May trade data and as stock declines boosted demand for haven assets. Australia’s dollar dropped after Chinese Premier Wen Jiabao said downward pressure on the economy is still “relatively large,” in remarks reported yesterday.

“The euro group has to provide a lot of nuts and bolts to what had been decided at the EU summit,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “If they decide something meaningful those who like it might buy euro-dollar up cautiously, but they will be disappointed as they had been last week by those who are more skeptical” pushing the currency lower.

The euro slid to $1.2251, the weakest since July 2010, before trading at $1.2275 at 9:44 a.m. London time, little changed from the New York close on July 6. The shared currency bought 97.82 yen after earlier touching 97.43, the lowest since June 5. Japan’s currency was at 79.68 per dollar. The Aussie declined 0.6 percent to $1.0157 and fell 0.5 percent to 80.95 yen.

The Stoxx Europe 600 Index of shares lost 0.5 percent, while the MSCI Asia Pacific Index dropped 1.6 percent.

Euro-region leaders agreed at a summit in June to relax conditions on emergency loans for Spanish banks. Europe won’t obtain the powers to recapitalize banks directly in time for the injection of as much as 100 billion euros into Spain’s financial system by mid-2013, a European official said on July 6.

“We have to move quickly on banking supervision and we have to move quickly on the direct recapitalization of Spanish banks,” French Finance Minister Pierre Moscovici said yesterday.

Draghi is scheduled to speak in Brussels after the central bank cut the main refinancing rate to a record 0.75 percent on July 5. He said after last week’s decision that the cut may have only a “muted” economic impact and growth in the euro area “continues to remain weak with heightened uncertainty.”

The euro will “probably head down towards the $1.21 support level within the next week and a half,” Andrew Su, the Sydney-based chief executive officer of Compass Global Markets, said in a Bloomberg Television interview today. It may then test the low reached in June 2010 within the next couple of months, Su said.

 

Euro Lows

Europe’s shared currency reached $1.1877 on June 7, 2010, the weakest since 2006, according to data compiled by Bloomberg. It last touched $1.21 on June 11, 2010, when it declined to as low as $1.2045, the data show. Support is an area on a chart where orders to buy may be clustered.

The euro has fallen 3.3 percent in the past three months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was the biggest gainer in the period, rising 6.5 percent.

The yen tends to appreciate in periods of financial and economic turmoil because Japan’s current-account surplus makes it less reliant on foreign capital. Government data today showed the surplus was 215.1 billion yen in May, compared with the median estimate for an excess of 493.1 billion yen in a Bloomberg News survey of economists. Machinery orders, an indicator of capital spending, slumped 14.8 percent in May from April, the Cabinet Office said in a separate report.

Bank of Japan policy makers are set to meet on July 11-12. Governor Masaaki Shirakawa has said the central bank is fully committed to pursuing “powerful monetary easing” until a 1 percent inflation target set in February is in sight. The central bank has expanded its asset-purchase fund, its main policy tool, by 20 trillion yen this year, in a bid to stimulate growth.

Citigroup Inc. expects the BOJ to leave policy unchanged, currency strategist Osamu Takashima wrote in a report today.

“Among Japanese economists, it’s expected that the BOJ will expand the size of its asset purchase program,” Takashima wrote. “Should the BOJ surprise the market, it could be associated with a somewhat stronger yen.”

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, was little changed after an advance last week.

 

Lower Capacity

“Failure to act aggressively now will lower the capacity of the economy for many years to come,” Chicago Federal Reserve President Charles Evans said in the text of remarks today in Bangkok. “I support using our balance sheet to provide additional accommodation.”

The Dollar Index was at 83.324 after rising 2.1 percent in the five days ended July 6.

Australia’s currency slid after the official Xinhua News Agency reported yesterday that Chinese Premier Wen said the government will intensify fine-tuning of policies in response to downside risks to growth. The comments came after the South Pacific nation’s biggest trading partner announced the second interest-rate cut in a month.

Consumer prices in China rose 2.2 percent in June from a year earlier, according to a report released today. That’s the slowest pace in 29 months and compares with the median forecast for a 2.3 percent inflation rate in a Bloomberg poll.

 

 Bloomberg News

 

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