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Euro Weakens for Fifth Day on Bets ECB Will Cut Rates; Yen Rises - (Bloomberg)

Posted by Chris Advincula on Nov 1, 2013 5:05:00 AM

The euro weakened for a fifth day against the dollar as signs of economic weakness in the single currency bloc fueled speculation the European Central Bank will cut interest rates as soon as next week.

The 17-nation currency headed for its biggest weekly decline since February after reports yesterday showed the region’s inflation slowed and unemployment climbed to a record. The yen strengthened against all except one of 16 major counterparts as declines in Asian stocks boosted demand for haven assets. Sweden’s krona fell after a report showed manufacturing expanded less last month than economists forecast.

“The euro is being sold as weaker inflation data suddenly put an ECB rate cut back on the table,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “For the euro to extend drops, we need to see an actual rate cut in Europe or a slew of strong data out of the U.S.”

The euro fell 0.4 percent to $1.3531 at 8:49 a.m. London time, having declined 2 percent this week, the most since the period ended Feb. 8. The shared currency dropped 0.5 percent to 132.88 yen after sliding to 132.61, the lowest since Oct. 11. The yen strengthened 0.2 percent to 98.20 per dollar.

Bank of America Corp., UBS AG and Royal Bank of Scotland Plc now forecast a cut a rate cut at this month’s meeting on Nov. 7. BNP Paribas SA, Societe Generale SA, JPMorgan Chase & Co. and Scotiabank predict a reduction in December, when the central bank will publish new economic projections. The ECB last lowered its benchmark rate on May 2 to a record 0.5 percent.

Europe Inflation

The euro area’s annual inflation rate declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September, the European Union’s statistics office said yesterday. Euro-area unemployment stood at a record 12.2 percent in September, separate data showed.

“The inflation data was weak and it boosted expectations for additional easing by the ECB,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. The ECB may create a new long-term refinancing operation program in December, according to Kadota.

The euro has slumped 1 percent this week, the worst performer after the Swedish krona of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.3 percent and the yen gained 0.4 percent.

The yen advanced for a second day versus the euro and dollar as the MSCI Asia Pacific Index of shares fell 0.5 percent and the Topix index of Japanese equities dropped 0.9 percent, boosting demand for the safety of the currency.

‘Losing Steam’

The Bank of Japan yesterday maintained its pledge to expand the monetary base by as much as 70 trillion yen and forecast inflation will reach its 2 percent target, even as some board members cautioned that price outlook was too optimistic.

Japanese stocks “are losing steam at the moment, which casts some doubt among investors over the quantitative-easing program initiated by the BOJ,” said Kenny Kan, an analyst at CMC Markets in Singapore. “That has shaken the confidence in prospects for a weaker yen and led to some investors taking profit, especially in the dollar-yen.”

The krona fell for a fifth day against the dollar as Swedbank Markets said its manufacturing index based on a survey of purchasing managers fell to 52 in October from 56 the previous month. A Bloomberg News survey predicted the gauge would decline to 54.5.

The krona weakened 0.3 percent to 6.5039 per dollar and was little changed at 8.8029 per euro. 

 

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