Euro Touches One-Year Low Versus Dollar

The euro reached the lowest level in almost a year against the dollar as signs the region’s economy is underperforming that of the U.S. damped demand for the shared currency.

Hedge funds and other large speculators last week increased bets on declines in the euro versus the dollar to the most in more than two years. A report today showed euro-area manufacturing expanded at a slower pace than initial estimated in August, adding to the case for the European Central Bank to expand stimulus. Sweden’s krona dropped to a more than two-year low versus the dollar after the pace of manufacturing growth slowed more last month than economists forecast.

“We’ve been maintaining a bearish view on the euro for some time,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “The presumptions in that, in terms of the deteriorating fundamentals and that the ECB will do more, seem to be coming together quite well. The path of least resistance is for a cheaper euro.”

The euro was little changed at $1.3141 as of 10:06 a.m. London time after earlier touching $1.3119, the weakest since Sept. 6. The euro has declined for the past seven weeks, the longest stretch since December 1999.

The 18-nation common currency gained 0.1 percent to 136.88 yen, after falling 0.7 percent in August. The dollar was at 104.16 yen, after gaining 1.3 percent last month. U.S. markets are closed for the Labor Day holiday.
Bearish Bets

The difference in the number of wagers on a decline in the euro against the dollar compared with those on a gain — so-called net shorts — was 150,657 on Aug. 26, the most since July 2012, according to data from the Washington-based Commodity Futures Trading Commission.

The euro may decline to $1.2750 by year-end, CIBC’s Stretch said.

Markit Economics said today that its final August index of euro-area manufacturing dropped to 50.7 last month, the lowest level since July 2013. That compares with an earlier estimate of 50.8. Readings exceeding 50 indicate expansion.

The ECB will hold a policy meeting on Sept. 4. It may embark on quantitative easing this year or next, according to 44 percent of respondents in a ForexSQ survey last month.

“We expect ECB President Draghi’s statement to be scrutinized for hints regarding the thresholds for Quantitative Easing,” Mitul Kotecha, the Singapore-based head of Asia-Pacific foreign-exchange strategy at Barclays Plc, wrote in an e-mailed note to clients today. “Although Draghi will sound dovish, policy inaction may give the euro some limited, albeit short-lived, relief.”
Data Surprises

The Citigroup Economic Surprise Index for the euro region dropped to minus 45.10 on Aug. 29, the lowest since June 2013. A negative number means data releases have been weaker than expected. The equivalent U.S. index was at 34.60, the most since Jan. 31.

The euro slid 1.5 percent in the past month, the worst performer among the ForexSQ Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar rose 0.9 percent, while the yen fell 0.8 percent.

“One of the big reasons why euro-dollar is going down is we’ve got talk of tightening coming out of the Federal Reserve and the opposite kind of talk coming out of Europe,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. “Data out of the U.S. has been pretty good.”

The euro may fall toward $1.30 this week and find support around that level, Rochford’s Averill said. Support is an area on a chart where there may be orders to buy.
Krona Slides

The Swedish krona declined against all of its 16 major peers after Swedbank in Stockholm said its manufacturing purchasing managers’ index fell to 51 in August from a revised 55.1 the previous month. The median estimate in a ForexSQ News survey of analysts was for a reading of 54.8.

The krona depreciated 0.2 percent to 7.0026 per dollar after reaching 7.0346, the weakest level since July 2012. It declined 0.2 percent to 9.2015 per euro.

The kiwi strengthened as Statistics New Zealand said in Wellington the terms of trade index, which measures the price of exports relative to imports, rose 0.3 percent in the second quarter from the previous three-month period. Economists surveyed by ForexSQ predicted a 3.5 percent decline.

New Zealand’s dollar gained 0.3 percent to 83.88 U.S. cents, after declining 0.3 percent on Aug. 29.