The euro dropped for a second
consecutive week versus the dollar for the first time in almost
five months on speculation European Central Bank and Federal
Reserve monetary policies are deviating.
The 18-nation currency touched the lowest level in a month
amid comments from policy makers, from Bundesbank President Jens
Weidmann saying there’s low risk of deflation, to ECB Governing
Council member Jozef Makuch citing higher risks of deflation.
Currencies of commodity producers rallied amid speculation China
will do more to support economic growth. The ECB meets April 3,
a day before the U.S. is forecast to report employment growth.
“The sense that the ECB needs to react is very strong;
their delivery tends to be somewhat disappointing,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New
York, said in a phone interview. “We’re starting to see the
beginning of divergences in policies, which we haven’t seen for
many years, and that is very good for the foreign-exchange
The euro fell 0.3 percent to $1.3752 this week in New York,
after dropping 0.9 percent last week. It touched $1.3705
yesterday, the lowest level since Feb. 28. The currency last
depreciated for two straight weeks in the 10 trading days ended
Nov. 8. It has lost 0.4 percent in March.
The shared currency rose 0.3 percent versus the yen to
141.40 and has gained 0.7 percent in March. The Japanese
currency fell 0.6 percent to 102.83 per dollar in a second
weekly loss. The yen has dropped 1 percent this month.
South Africa’s rand climbed the most among the greenback’s
31 major counterparts this week, rallying 3 percent, while
Brazil’s real was the second-biggest winner, gaining 2.8
percent. Sweden’s krona was the biggest loser, weakening 1.2
percent, followed by the yen.
An equally weighted basket of the so-called dollar-bloc
currencies — those of Australia, New Zealand and Canada, all
commodity producers — rallied to 102.61 this week, the highest
level since Oct. 22, against the yen and the dollar.
“The other theme that has emerged this week is the
strength of the dollar-bloc currencies,” Marc Chandler, global
head of currency strategy in New York at Brown Brothers Harriman
Co., wrote in a client note yesterday.
Australia’s dollar rose to the strongest in four months as
Chinese Premier Li Keqiang said his nation can’t ignore
“difficulties and risks” from downward pressure on its
economy. It has policies in reserve to deal with economic
volatility this year, Li said in a statement yesterday on the
government website. China is Australia’s largest trade partner.
The Aussie gained 1.8 percent this week, the most since the
five days ended Feb. 7, to 92.47 U.S. cents. It touched 92.95
cents yesterday, the highest since Nov. 21.
The euro weakened 1.1 percent in the past three months in a
basket of 10 developed-nation currencies tracked by Bloomberg
Correlation-Weighted Indexes. The dollar dropped 1.2 percent,
while the yen strengthened 1.4 percent.
Reports this week showed declines in business climate and
manufacturing in Germany, Europe’s biggest economy. Consumer-price inflation slowed this month in the nation and three of its
states, and prices unexpectedly declined in Spain, data showed
“The ECB has many measures; one of them is supplying
liquidity into circulation,” Makuch said March 25 in
Bratislava, Slovakia, citing “deflation risks.” The measures
would depend on the circumstances, he said.
ECB President Mario Draghi said in a speech in Paris that
day the central bank’s accommodative monetary policy should be
increasingly felt throughout the euro-region economy. Still, he
said, “if any downside risks to this scenario appear, we stand
ready to take additional monetary policy measures.”
Bundesbank President Weidmann told foreign reporters in
Berlin the risk of deflation in Europe is “very low.”
The council will keep the benchmark interest rate unchanged
at a record-low 0.25 percent when it announces a policy decision
on April 3, according to most economists surveyed by Bloomberg.
While Draghi’s outlook is that financial conditions will
improve in Europe as the financial system heals, there’s still
an issue of timing, Andrew Milligan, Edinburgh-based head of
global strategy at Standard Life Investments Ltd., said in an
interview. The firm manages about $270 billion.
“It might be 2015, but it’s not 2014” when the system
regains its health, he said yesterday in New York. “We are
getting mixed signals from the ECB.”
The U.S. central bank last week cut its bond buying to $55
billion, from $85 billion last year, citing “underlying
strength” in the economy. Fed Chair Janet Yellen said the
stimulus program may conclude by year-end and the key interest
rate may rise from virtually zero about six months later.
U.S. employers hired 200,000 workers in March, according to
the median forecast of economists surveyed by Bloomberg before
the Labor Department reports the data next week. That compares
with 175,000 the previous month.
Sterling gained versus the euro and dollar this week as
U.K. retail sales including auto fuel increased 1.7 percent in
February from a month earlier. Economists polled by Bloomberg
forecast growth of 0.5 percent. Gross domestic product expanded
for a fourth quarter, growing 0.7 percent, matching forecasts.
The pound rose 0.9 percent to $1.6638, snapping a three-week drop. The British currency rallied 1.2 percent to 82.65
pence per euro, the biggest gain since Feb. 14.
Sterling has outperformed all of 31 major peers in the past
12 months amid speculation the U.K.’s economic growth will cause
the central bank to bring forward interest-rate increases. Bank
of England policy maker Martin Weale said last month they will
“come perhaps in the spring of next year.”
To contact the reporter on this story:
John Detrixhe in New York at
To contact the editors responsible for this story:
Dave Liedtka at
Greg Storey, Paul Cox