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Euro Falls Amid Concern Crisis Worsening, Global Growth Slowing

Published: August 11, 2012 | 10:01 am
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The euro declined versus the dollar for the first time in three weeks as signs of slowing global economic growth added to concern Europe’s sovereign-debt crisis is worsening, damping appetite for riskier assets.

The yen rose against the 17-nation currency as investors sought haven after China’s export growth collapsed, while economists forecast data next week will show the euro bloc’s economy contracted for a second straight quarter. European Central Bank President Mario Draghi said last week the ECB plans to buy debt to stem the turmoil. The Canadian dollar gained versus most of its peers as oil climbed for a second week.

“Risk-on was a little stronger in the beginning of the week following the previous week’s comments out of Europe,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said yesterday in a telephone interview. “Reality set in that it’s all about the implementation. After the soft China data, people probably put things into neutral and maybe reversed a bit heading into the weekend.”

The 17-nation currency declined 0.8 percent to $1.2289 this week in New York in its first loss since the five days ended July 20. The euro depreciated versus the yen for the first time in three weeks, falling 1.1 percent to 96.17. Japan’s currency rose 0.2 percent to 78.28 per dollar.

Futures Positions
Futures traders decreased bets the euro will fall against the dollar, Commodity Futures Trading Commission data showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain — so-called net shorts — was 131,711 on Aug. 7, compared with 138,994 a week earlier. Net shorts reached a record 214,418 on June 8.

Norway’s krone was the biggest winner among major currencies. It climbed 1.8 percent to 7.2702 per euro and touched 7.2502, the strongest since January 2003. The currency advanced 1.1 percent to 5.9149 per dollar.

The Swedish krona reached the highest level versus the shared currency in 12 years. It touched 8.1784 per euro yesterday, the strongest since June 2000. For the week, it appreciated 1.5 percent to 8.1821, and rose 0.7 percent to 6.6575 per dollar.

Refuge Demand
“There’s a lot of focus on these currencies as safe havens with strong fundamentals,” Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen, said in an Aug. 8 telephone interview. “There’s a double effect of demand for these currencies and a weak euro.”

The euro fell this week against all of its 16 most-traded counterparts tracked by Bloomberg except the Danish krone.

The shared currency slid yesterday against the yen and dollar after Germany’s economy ministry said the outlook for faster growth was fading amid the financial crisis that began in Greece almost three years ago and has spread. Economists in a European Central Bank survey this week cut their 2013 growth forecast to 0.6 percent from 1 percent.

Gross domestic product in the euro area may have contracted 0.2 percent in the quarter through June, after falling 0.1 percent in the previous period, according to the median forecast of economists in a Bloomberg News survey. The European Union’s statistics office will report on Aug. 14.

Euro Forecast
“Structurally, I’m looking for the euro to go to parity,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd., said in a Bloomberg Television interview on Aug. 8 on “Countdown” with Linzie Janis. “It will take about a year, but we are heading in that direction.”

The currency gained last week after the ECB’s Draghi said following a policy meeting that officials are working on a plan to buy enough government bonds to ease the turmoil. Details will be released in coming weeks, he said.

The Federal Reserve said Aug. 1 it “will provide additional accommodation as needed” to spur growth and employment. It refrained from action this month.

“There’s a lot of talk from central banks, but no actions,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said Aug. 9 in a telephone interview. “The risk momentum that we’ve been experiencing ever since the Fed and the ECB stepped up their rhetoric is becoming slightly deflated.”

Aussie Level
Australia’s dollar fell yesterday from the strongest level in more than four months as the Chinese report damped the outlook for the South Pacific nation’s exports. The data outweighed the Reserve Bank of Australia’s decision to raise its 2012 growth forecast on stronger-than-projected consumer demand.

China’s exports rose 1 percent in July from a year earlier, following an 11.3 percent increase in June, the customs bureau said in Beijing. That compared with the median estimate of economists for an 8 percent gain.

The Aussie was little changed at $1.0577 this week after climbing Aug. 9 to $1.0613, the strongest level since March 20. The currency fell 0.2 percent to 82.79 yen.

Canada’s dollar strengthened versus the greenback for a fifth straight week, the longest winning streak since October 2010, amid an increase in crude oil, the nation’s biggest export.

The currency, nicknamed the loonie for the image of the waterfowl on the one-dollar coin, gained 1 percent to 99.11 U.S. cents. Crude for September delivery increased 2.2 percent to $93.39 a barrel in New York.

Canada Trend
The loonie rose 3.6 percent during the past six months, the best performance among 10 developed-nation currencies tracked by the Bloomberg Correlation-Weighted Indexes. The euro was the biggest loser, dropping 5.4 percent, while the dollar rose 2.4 percent.

The euro’s risk-adjusted loss of 0.57 percent against the dollar this year was the second-largest among major currencies, after the Singapore dollar’s, the Bloomberg Riskless Ranking showed. The loonie was the third-worst performer, falling 0.410 percent.

The risk-adjusted return, which isn’t annualized, is calculated by dividing total return by volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A higher volatility means the price of an asset can swing dramatically in a short period, increasing the potential for unexpected losses.


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