Euro in Biggest Weekly Drop Since ’13 Versus Yen on Output Data
Frankfurt (Jan 9) The euro fell for a second day against the yen, set for the biggest weekly slide since 2013, as reports from around Europe added to evidence of a deepening slump that may prompt more financial-stimulus measures.
The common currency was 0.8 percent from its nine-year low against the dollar as reports showed industrial output shrank in Germany, France and Finland, and before data that economists said will show American employers added workers last month. The dollar dropped against the yen as Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said raising U.S. interest rates this year would hinder the recovery in inflation.
“The market is increasingly pricing in the possibility of the euro-zone falling into deflation, and this is something the ECB has to act on quickly,” said Ulrich Leuchtmann, the head of currency strategy at Commerzbank AG in Frankfurt. “On the dollar side, the labor-market report is likely to be strong but everybody is prepared for it.”
The euro dropped 0.2 percent to 140.86 yen as of 7 a.m. New York, bringing its weekly decline to 2.6 percent, matching its drop in the period ended June 14, 2013. Against its U.S. peer, the euro gained 0.2 percent to $1.1813, still down 1.6 percent in the week. It reached $1.1754 yesterday, the weakest since December 2005. The dollar fell 0.4 percent to 119.23 yen. It surged to 121.85 on Dec. 8, the strongest since July 2007.
Production Slumping
Industrial output in Germany, adjusted for seasonal swings, fell 0.1 percent in November from October, when it climbed a revised 0.6 percent, the Economy Ministry in Berlin said today. Analysts in a Bloomberg News survey predicted an increase of 0.3 percent. In France, the decline was 0.3 percent compared with a forecast in a separate survey of a 0.3 percent gain, while Finland’s 0.2 percent drop compared with a median prediction of a 0.2 percent gain.
European Central Bank President Mario Draghi said stimulus measures may include sovereign-bond purchases. In a letter to European Parliament lawmaker Luke Flanagan released yesterday, Draghi echoed his remarks made after the Governing Council’s Dec. 4 meeting.
“The Governing Council will reassess the monetary stimulus,” Draghi said in the letter dated Jan. 6 and published on the ECB’s website. “This may imply adjusting the size, pace and composition of the ECB’s measures. Such measures may entail the purchase of a variety of assets -- one of which could be sovereign bonds.”
Targeting Purchases
ECB staff presented policy makers with models for buying as much as 500 billion euros of investment-grade assets, according to a person who attended a meeting of the Governing Council. Various quantitative-easing options were shown to governors on Jan. 7 in Frankfurt, including buying only AAA-rated debt or bonds rated at least BBB-, the euro-area central bank official said.
The euro has dropped 1.1 percent this week, the biggest slide among 10 currencies tracked in Bloomberg Correlation-Weighted Currency Indexes. Japan’s yen gained 1.8 percent and the dollar rose 0.6 percent.
“How many hints do you need from Draghi that the ECB will potentially look at government-bond purchases?” said Robert Rennie, head of currency and commodity strategy at Westpac Banking Corp. in Sydney. “That continues to be a key driver of euro weakness.”
Labor Department data today will show U.S. non-farm payrolls climbed by 240,000 workers last month, adding to a gain of 321,000 the month before, while the jobless rate dropped to 5.7 percent from 5.8 percent, according to a Bloomberg surveys.
Jobless Rate
Increasing borrowing costs in 2015 “would only further retard the pace of the slow recovery in inflation,” Kocherlakota said in the text of speech prepared for delivery at a town hall meeting in Minneapolis. The jobless rate “remains elevated,” he said.
There’s a 58 percent likelihood the Federal Reserve will raise its target federal funds rate from a zero-to-0.25 percent range to at least 0.5 percent by September, futures data compiled by Bloomberg show.
Russia’s ruble slipped 1.9 percent to 61.4900 per dollar before Fitch Ratings, which ranks Russia two levels above junk, makes a ratings announcement today. The currency, hit by geopolitical concerns relating to the crisis in Ukraine and a slump in oil prices, has slumped 4.4 percent against the dollar over the last five days -- the most of 31 major currencies.
Source: Bloomberg
