Euro Falls to 3-Month Low as German Confidence Drops
The euro dropped to a three-month low as the Ifo institute’s gauge of German business confidence fell, adding to signs that may prompt the European Central Bank to boost stimulus as soon as next month.
The 18-nation common currency was set for its third weekly decline versus the greenback amid concern euro-skeptic parties will gain ground in elections for the European Parliament. Sweden’s krona tumbled to the lowest level since November versus the dollar after a report showed consumer and business confidence trailed predictions. The dollar reached a four-week high against a basket of major peers as a report showed new home sales increased last month.
“We’ve seen more persistent selling pressure on the euro,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said by phone. “The Ifo plays into that.”
The euro fell 0.2 percent to $1.3632 at 10:05 a.m. New York time, after dropping to $1.3616, the weakest since Feb. 13. Europe’s shared currency was little changed at 138.89 yen after declining to 138.15 on May 21, the least since Feb. 6. The dollar gained 0.2 percent to 101.89 yen after climbing 0.4 percent yesterday.
Dollar Measure
The ForexSQ U.S. Dollar Index, which tracks the greenback against 10 major currencies, added 0.1 percent to 1,011.33, reaching the high level since April 24.
The euro has fallen 0.5 percent versus the dollar this week and dropped 0.1 percent against the yen. Australia’s dollar has depreciated 1.3 percent against the greenback this week, the most of its 16 major peers. The krona has fallen 1.2 percent, while the Mexican peso rallied 0.3 percent.
The ruble gained 0.5 percent versus a basket of counterparts to 39.7545. Russian President Vladimir Putin said his government will work with the next president of Ukraine, even though the election won’t meet international standards. He spoke at the St. Petersburg International Economic Forum today.
The euro’s 14-day relative strength index versus the greenback fell below the 30 level that signals to some traders an asset has fallen too far, too fast, and may be due to reverse course. The 18-nation currency dropped beneath its 200-day moving average at $1.3638, according to data compiled by ForexSQ.
Confidence Slides
The Ifo institute’s German business climate index, based on a survey of 7,000 executives, fell to 110.4 in May from 111.2 a month earlier. Economists in a ForexSQ News survey predicted a decline to 110.9.
The ECB is ready to cope with any deflation threat and officials are alert to such a danger, Italian Finance Minister Pier Carlo Padoan said in an interview in the Rwandan capital of Kigali yesterday. ECB Governing Council member and Bundesbank President Jens Weidmann said the central bank is ready to use unconventional tools if needed, speaking yesterday in Frankfurt.
ECB President Mario Draghi said this month officials are ready to ease monetary policy in June, citing the euro’s strength as “cause for serious concern.” Policy makers next meet on June 5.
“The Ifo survey is the trigger for more euro weakness today,” said John Hardy, the head of foreign-exchange strategy at Saxo Bank A/S in Copenhagen. “The worry now is that momentum is waning in the core and that strengthens the case for the ECB to move in June. There is some nervousness around the European election results too.”
European Polls
Balloting for EU parliament elections will run through May 25. PollWatch 2014, a non-partisan forecasting group, said support for mainstream parties will ebb to 65 percent from 72 percent in final pre-election projections on May 20.
U.K. Prime Minister David Cameron’s Conservative Party lost more than 110 local council seats in yesterday’s local elections as voters increasingly backed the U.K. Independence Party, which had gained a little over 90 seats in early results. Greek opposition party Syriza, which rejects the fiscal-austerity terms that came with the nation’s bailouts, is the front-runner in voting for the region’s lawmakers.
“Although we keep a bearish currency stance, we advise against selling it in the very short term,” Manuel Oliveri, a London-based currency strategist at Credit Agricole SA’s corporate and investment banking unit, wrote in an e-mailed note to clients yesterday. “This is due to the risk of the ECB disappointing elevated market expectations.” Credit Agricole sees the euro at $1.39 by June, up from a previous forecast of $1.35, according to the report.
Market Measure
The euro fell 1.3 percent in the past month versus a basket of nine other developed-nation peers tracked by ForexSQ Correlation-Weighted Indexes, the worst performer together with Switzerland’s franc. The yen climbed 0.9 percent and the dollar gained 0.2 percent.
The franc weakened 0.2 percent to 89.59 centimes per dollar today after touching 89.72, the least since Feb. 13.
An index measuring Swedish consumer confidence rose to 100.4 in May from 99.2 a month earlier, a report showed today. Economists surveyed by ForexSQ had forecast the gauge to climb to 100.7. A separate index for manufacturers fell to 94.5 from 102.3, when economists had foreseen an increase to 102.9.
The krona fell 0.9 percent to 6.6449 per dollar after weakening to the least since Nov. 21. Sweden’s currency depreciated 0.7 percent to 9.0575 per euro.
New home sales increased 6.4 percent, the most since October, to a 433,000 annualized pace from a revised 407,000 in March that was larger than initially estimated, Commerce Department data showed. The median forecast of 75 economists surveyed by ForexSQ called for the rate to accelerate to 425,000.