Euro Drops After Monthly Drop on Weak Economic Recovery

By Kristine Aquino & Masaki Kondo

The euro weakened following a decline last month as economic data signal the 17-nation region is struggling to recover, damping demand for the currency.

The euro fell versus most of its 16 major counterparts ahead of a report tomorrow that may show unemployment in the bloc climbed to a record in February, two days before European Central Bank officials meet to set interest rates. The yen strengthened, after last month capping its longest string of losses in 12 years, as a drop in Asian stocks spurred demand for safer assets. The Australian dollar slid after gains in Chinese manufacturing missed estimates. “There may be talks at this week’s ECB meeting about something accommodative,” said Hideki Shibata, a senior rates and currencies strategist at Tokai Tokyo Research Center Co. in Tokyo. “The euro is being sold because of such a risk.”

The euro lost 0.3 percent to $1.2782 as of 1:23 p.m. in Tokyo after declining 1.8 percent last month. It fell 0.5 percent to 120.22 yen. The shared currency traded 0.2 percent lower at 84.18 pence after touching 84.12, the weakest level since Jan. 24. The yen climbed 0.2 percent to 94.05 per dollar.

The MSCI Asia Pacific Index of shares decreased 0.9 percent. Financial markets in Australia, Hong Kong and Europe remain closed for holidays today.

Unemployment in the euro area probably climbed to an all- time high of 12 percent in February, according to the median estimate in a Bloomberg News survey of economists before the European Union’s statistics office releases the report tomorrow. A final reading of a gauge tracking manufacturing in the 17- nation region also due tomorrow may confirm a 20th month of contraction, a separate poll shows.

ECB Decision

ECB President Mario Draghi and his fellow policy makers will probably keep the 17-nation region’s benchmark interest rate at a record-low 0.75 percent at a meeting on April 4, according to analysts surveyed by Bloomberg.

The euro has fallen below its 200-day moving average and the 50 percent retracement from a July 24 low to Feb. 1 high, leading to further weakness in the currency, according to Teppei Ino, a Tokyo-based analyst at the Bank of Tokyo-Mitsubishi UFJ Ltd. It may decline to $1.2680, which is the 61.8 percent retracement and the lowest since Nov. 13, he said.

In Japan, the Tankan large manufacturers’ index climbed to minus 8 last quarter from minus 12 in the three months ended Dec. 31, a BOJ report showed today. The median forecast in a Bloomberg survey of analysts was for an advance to minus 7.

Japan’s currency declined 1.8 percent last month for a sixth-straight period of losses, the longest slide since 2001.

BOJ Focus

BOJ Governor Haruhiko Kuroda will preside over his first policy meeting on April 3-4. He said in testimony to parliament last week that he wants to achieve the central bank’s annual inflation target of 2 percent in two years. The BOJ needs to tackle deflation decisively and will take all necessary actions, Kuroda said in the text of a speech given today.

“We’re focused on what the BOJ will do under the new leadership in response to investor expectations,” said Kengo Suzuki, a currency strategist at Mizuho Securities Co. in Tokyo. “There are more factors to sell the euro than those to buy.”

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on an advance, so-called net shorts, was 49,095 in the period through March 26, the most since the week ended Nov. 30, according to figures from the Commodity Futures Trading Commission. Bearish bets on the yen climbed to 89,149 over the same period from 79,993 in the previous week, the data show.

Worst Performer

The euro fell 1.8 percent in the past month, the worst performer along with the Norwegian krone among the 10 developed- nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen weakened 0.2 percent and the greenback gained 0.3 percent.

Australia’s dollar dropped 0.2 percent to $1.0399 after a report today showed a gauge trackingmanufacturing in China, the South Pacific nation’s biggest trading partner, was at 50.9 last month from 50.1 in February. Economists had forecast a gain to 51.2. A similar measure by HSBC Holdings Plc and Markit Economics climbed to 51.6 in March from 50.4 in the previous period.

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

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