Euro Remains Lower on Prospects Draghi to Signal Stimulus

Bloomberg: The euro approached a one-week low versus the dollar on speculation European Central Bank President Mario Draghi will hint at further stimulus measures to counter the debt crisis at a policy meeting today.

The 17-nation currency was 0.3 percent from a two-week low versus the yen as Spanish borrowing costs increased as it sold 2.52 billion euros ($3.29 billion) of three- and five-year notes. The dollar strengthened against most of its major counterparts as investors sought safer assets. New Zealand’s dollar dropped to a three-month low versus the U.S. currency after the unemployment rate increased.

“Downside risks are increasing for the euro,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “It appears reasonable to expect Draghi to present a more-downbeat growth outlook today. We don’t anticipate a policy change today but he could give more encouragement to the market that the ECB stands ready to provide further stimulus if required.”

The euro fell 0.1 percent to $1.3142 at 10:01 a.m. in London after dropping to $1.3122 yesterday, the lowest level since April 23. The 17-nation currency was little changed at 105.49 yen. It declined to 105.13 yesterday, the weakest since April 16. The dollar gained 0.2 percent to 80.32 yen.

The ECB will keep its benchmark interest rate at a record low 1 percent, according to all 58 economists surveyed by Bloomberg News. Inflation will slow next year and risks to the economic outlook remain on the downside, Draghi told lawmakers in Brussels on April 25. That’s a contrast to the “upside risks” he warned of at the ECB’s previous meeting on April 4.

Spanish Yields

Spain sold 765 million euros of notes due in January 2017 at an average yield of 4.75 percent, versus 3.57 percent at a previous auction of five-year securities on Feb. 2. It sold three-year debt at an average rate of 4.037 percent, compared with 2.617 percent on March 1.

The increase in borrowing costs has fueled speculation the impact on yields from the ECB’s three-year loans to banks, known as the longer-term refinancing operations, is waning.

“The ECB’s LTROs had a major impact when they were first announced in December last year, but the same trick will be hard to pull off again,” Julian Jessop, London-based chief global economist at Capital Economics Ltd., wrote in a note today.

Manufacturing Shrinks

The euro dropped for a third day versus the dollar yesterday as Markit Economics said its gauge for the region’s manufacturing was below 50 for a ninth month in April, a level that indicates contraction. The jobless rate in the currency bloc was at a 15-year high of 10.9 percent in March, the European Union statistics office said.

“The underlying fundamentals are deteriorating, which points towards an eventual adjustment lower in euro-dollar,” Hardman said.

The euro has weakened 6.9 percent over the past 12 months, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 6.1 percent, and the yen strengthened 5.3 percent.

The Dollar Index (DXY) rose for a fourth day as economists forecast a government report this week will show U.S. employers hired additional workers last month.

The Labor Department will report May 4 that the U.S. added 160,000 jobs in April, up from 120,000 the previous month, economist estimates compiled by Bloomberg show.

‘Continue to Rise’

“The U.S. dollar will continue to rise, even though some of the U.S. data might weaken a little bit,” Commonwealth Bank’s Capurso said. “It’s still a lot better than what is happening in the euro zone.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.1 percent to 79.249 after rising 0.6 percent over the previous three days.

New Zealand’s dollar, known as the kiwi, weakened versus all of its 16 major counterparts after unemployment exceeded the most pessimistic forecast in a Bloomberg survey of economists.

The jobless rate climbed to 6.7 percent in the first quarter from a revised 6.4 percent in the previous three months, Statistics New Zealand said. That was higher than the most- pessimistic forecast in the survey.

“The overall unemployment headline number is worse,” said Tim Kelleher, Auckland-based head of institutional foreign- exchange sales at ASB Institutional, a unit of Commonwealth Bank of Australia. (CBA) “The kiwi didn’t like the data.”

The currency dropped 1 percent to 80.28 U.S. cents after falling to 80.13 cents, the weakest since Jan. 20.

reporters on this story: Masaki Kondo in Singapore