The euro weakened for a third day against the dollar, the longest losing streak in almost a month, after data showed European manufacturing shrank and unemployment rose in Germany, adding to concern the debt crisis will worsen.

The 17-nation currency dropped to a two-week low versus the yen on speculation European Central Bank President Mario Draghi will signal tomorrow policy makers are moving closer to cutting interest rates to spur growth. The dollar erased gains against the yen after private data showed U.S. companies added fewer workers than forecast in April, boosting bets the Federal Reserve may keep accommodative monetary policy in place longer.

“We have very bad purchasing-manager indexes and the first sign that Germany is cracking,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. “The gangrene has spread from the periphery to the core. If Draghi hints that there will be more easing to come, the euro may be vulnerable and fall to the $1.30 level.”

Europe's shared currency dropped 0.6 percent to $1.3153 at 10:28 a.m. in New York in its longest series of daily losses since April 5. The euro fell 0.6 percent to 105.38 yen and touched 105.13 yen, the lowest since April 16. The dollar was little changed at 80.13 yen after appreciating as much as 0.7 percent earlier.

The euro dropped against most of its 16 major peers as London-based Markit Economics said its purchasing-manager index of euro-region manufacturing shrank for a ninth month, sliding to a 34-month low of 45.9 in April from 47.7 in March. A reading below 50 shows contraction.The number of people out of work in Germany increased a seasonally adjusted 19,000 last month to 2.87 million, the Nuremberg-based Federal Labor Agency said. Economists surveyed by Bloomberg forecast a decline of 10,000. Yields on Germany's two-, five-, 10-, and 30-year bonds dropped to record lows.

Draghi tomorrow may 'begin to hint that the outlook for the European economy is clearly beginning to deteriorate again,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “Within the next couple of months, the possibility of further rate cuts from the ECB is rising.”

The central bank will keep its benchmark interest rate at a record low 1 percent at tomorrow's meeting in Barcelona, according to all 58 economists surveyed by Bloomberg News.

If the euro weakens below $1.30 after the ECB's meeting tomorrow, it could trigger further depreciation as support levels are breached, GFT Forex's Schlossberg said. Support is an area on a chart where buy orders may be clustered.

Spain will auction three- and five-year notes tomorrow amid speculation that the euro area's fourth-largest economy will follow Greece, Ireland and Portugal in seeking a bailout. France and Greece hold elections on May 6.

The euro weakened 6.5 percent over the past 12 months, the worst performance of the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar climbed 6.4 percent, and the yen appreciated 6.3 percent.

The Dollar Index briefly pared gains after a report showed U.S. companies added fewer jobs than forecast. Private employers' payrolls increased by 119,000 workers last month, after a revised 201,000 gain in March, according to Roseland, New Jersey-based ADP Employer Services. The median forecast of economists in a Bloomberg News survey was for a 170,000 advance.

U.S. nonfarm payrolls added 160,000 jobs in April, up from 120,000 the previous month, another Bloomberg survey showed before the Labor Department reports the data on May 4.

Orders to U.S. factories fell 1.5 percent in March, after a revised 1.1 percent gain in February, a Commerce Department report showed today.

While the Fed refrained at a two-day meeting last week from new actions to boost the economy, Chairman Ben S. Bernanke said it's “prepared to do more” if necessary. The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to lower borrowing costs. The Dollar Index fell 14 percent during that period.

Four U.S. central-bank officials have said they don't see a need to ease policy further as the economy expands. John Williams, president of the San Francisco Fed, joined his counterparts from Richmond, Philadelphia and Atlanta yesterday in casting doubt on the need for additional purchases of bonds to cap longer-term interest rates.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. rose 0.4 percent today to 79.193 and reached 79.319, the highest level since April 24.

The yen dropped earlier versus the dollar after Moody's Investors Service said the role of lawmaker Ichiro Ozawa in Japan's tax reform talks may have an impact on the country's credit rating.

An increase in the country's consumption tax “is a significant issue that hasn't been resolved yet,” Tom Byrne, senior vice president at Moody's told reporters in Manila. “Ozawa's role in the debate, there could be implications there, but right now we don't see anything.”

Bloomberg News

Instant Insights /

Euro Drops for Third Day

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