Euro Falls to 5-Week Low Versus Yen Amid Slowdown; Krona Climbs

By Joseph Ciolli & Neal Armstrong

The euro fell to a five-week low against the yen as a report showed unemployment in the 17-nation currency bloc climbed to a record in February, adding to concern the economy will struggle to emerge from recession.

The single currency dropped against 13 of its 16 most- traded counterparts as a purchasing-manager index of manufacturing stayed below the level that shows contraction. Sweden’s krona gained for a second day versus the dollar after the nation’s manufacturing expanded. Australia’s dollar rose after the Reserve Bank said existing stimulus was working. The European Central Bank meets to review policy on April 4. “The PMI data was universally soft, and that’s pushed the euro lower,” Jack Spitz, Toronto-based managing director of foreign exchange at National Bank of Canada, said in a telephone interview. “There’s still downside risk with respect to structural issues and ahead of the ECB, which is expected to guide more dovishly given the economic misses.”

The euro weakened 0.2 percent to 119.59 yen at 8:47 a.m. inNew York and reached 119.15, the weakest level since Feb 26. The common currency declined 0.1 percent to $1.2833. The yen was little changed at 93.18 per dollar.

Unemployment in the euro area rose to 12 percent and the January figure was revised up to the same level from 11.9 percent estimated earlier, the European Union’s statistics office said. That’s the highest since the data series started in 1995. A gauge of manufacturing in the region slid to 46.8 last month from 47.9 in February, Markit Economics said. A reading below 50 indicates contraction.

‘Recessionary Territory’

“Euro-area PMIs are stuck in recessionary territory,” said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The ECB will acknowledge this week that the pace of economic recovery remains disappointingly weak, which will dampen upside potential for the euro.”

The krona gained most of its major peers as Stockholm-based Swedbank ABA said a PMI for the country advanced to 52.1 in March from 50.9 the previous month. A reading higher than 50 indicates growth.

The krona appreciated 0.6 percent to 6.4779 per dollar after rising 0.2 percent yesterday. The currency strengthened 0.7 percent to 8.3145 per euro.

The Aussie dollar gained as the Reserve Bank of Australia kept its key interest rate unchanged and Governor Glenn Stevenssaid “there are a number of indications that the substantial easing of monetary policy during late 2011 and 2012 is having an expansionary effect on the economy.”

‘More Confident’

The RBA is “sounding more confident that monetary policy is still powerful -- it’s not pushing on a string, even at these low rates,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp. (WBC) “Speculators have ramped up their Aussie dollar positions very substantially.”

Australia’s currency rose 0.4 percent to $1.0464 and gained 0.3 percent to 97.50 yen.

The euro declined 1.8 percent over the past month versus nine developed-nation peers, according to Bloomberg Correlation- Weighted Indexes. The dollar dropped 0.3 percent, while the yen gained 0.2 percent.

The common currency slid 2.8 percent versus the dollar last quarter as inconclusive elections inItaly on Feb. 24-25 left a political deadlock. President Giorgio Napolitano has formed a 10-person committee to negotiate a new government for the nation before his term expires in six weeks.

The group will have to overcome “irreconcilable positions” among the political blocs in parliament, Napolitano said on March 30 as he appointed the advisers to carry on the search for common ground.

The delay drags out the uncertainty over budget discipline in the third-largest euro-area economy as cracks in the 17- member currency are exposed by bank-deposit losses imposed in Cyprus in return for a bailout.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net

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