Tags: euro | dollar | ECB | Fed

Euro Sinks to 11-Year Low Before ECB Meeting as Growth Diverges

Wednesday, 04 March 2015 03:50 PM EST

The euro dropped to the weakest level since 2003 as reports showed Europe’s economic-growth outlook diverging from the U.S. as the European Central Bank prepares to add monetary stimulus through bond purchases.

The 19-nation currency fell for a fifth day as traders waited for the ECB to provide more details on its quantitative-easing program at a meeting Thursday. Services growth in the euro area fell short of analysts’ estimates last month. A gauge of the dollar rose as data showed U.S. service businesses expanded and American companies added more than 200,000 jobs for a 13th straight month.

“This is going to keep us on this track of euro weakening,” said Steven Wieting, global chief investment strategist at Citigroup Inc.’s private bank. Dollar strength “is very much a consensus trade, but I do think it’s fundamentally heading in that direction even if there are setbacks.”

The euro fell 0.9 percent to $1.1072 at 2:19 p.m. New York time and reached $1.1062, the lowest since September 2003. The dollar was little changed at 119.71 yen.

The Bloomberg Dollar Spot Index rose 0.4 percent to 1,179.47, on track for its highest close in more than 10 years.

U.S. economic reports are being scrutinized by traders and policy makers alike as the Fed moves toward raising borrowing costs for the first time since 2006. The central bank will look at data to inform its decision on the timing of any interest- rate increase, Chair Janet Yellen told Congress last week.

Rate Speculation

The odds of a higher rate by the Fed’s December meeting were about 77 percent, according to futures data, versus a 63 percent chance that was seen at the end of January. The target for the federal funds rate has been at virtually zero since 2008 to support the economic recovery.

Policy makers meet next March 17-18. Most of the U.S. economy continued to expand from January through mid-February, with consumer spending rising and manufacturing gaining, the Fed’s Beige Book business survey said Wednesday.

The Institute for Supply Management’s non-manufacturing index rose to 56.9 from January’s 56.7, the Tempe, Arizona-based group said. A gauge above 50 shows growth. The median estimate in a Bloomberg survey called for 56.5.

U.S. companies added 212,000 jobs last month, according to Roseland, New Jersey-based ADP Research Institute, versus a forecast of 219,000 in a Bloomberg survey. January’s figure was revised to 250,000, from 213,000.

European Economy

In the euro region, a purchasing managers’ index for services industries was 53.7 in February, compared with the 53.9 estimate, Markit Economics confirmed. Earlier releases showed the sector in Spain grew at a slower pace than predicted. Italy’s was at the 50 level.

“The U.S. is probably a little further ahead in the economic recovery curve than the euro zone is,” said Jennifer Vail, head of fixed-income research in Minneapolis at U.S. Bank Wealth Management, which manages $122 billion in assets. “There’s been a lot of optimism about even the concept of QE and it driving growth in the euro zone, and then you get the data today.”

Europe is preparing to inject further stimulus into the economy, fueling a spate of policy easing around the world.

Poland became the latest central bank to lower interest rates Wednesday, cutting its benchmark rate by a half-percentage point to 1.5 percent. India earlier reduced its key rate for the second time this year in an unscheduled move.

Canadian Dollar

The Bank of Canada refrained from cutting rates Wednesday, sending the nation’s dollar higher for a second day. Policy makers unexpectedly lowered borrowing costs in January.

ECB President Mario Draghi unveiled a 1.1 trillion-euro ($1.2 trillion) bond-buying plan in January, pledging to purchase securities until there’s a “sustained adjustment” in inflation. The bank has reduced rates to record lows.

“It’s worth noting that the market may want to increase their short-euro exposure ahead of the ECB actually starting their QE program,” said Sam Lynton-Brown, a currency strategist at BNP Paribas SA in London. “While the announcement led to euro weakness, we also think the flow impact of QE is going to be very important.” A short position is a bet that the price of an asset will decrease.

© Copyright 2024 Bloomberg News. All rights reserved.

The euro dropped to the weakest level since 2003 as reports showed Europe's economic-growth outlook diverging from the U.S. as the European Central Bank prepares to add monetary stimulus through bond purchases.
euro, dollar, ECB, Fed
Wednesday, 04 March 2015 03:50 PM
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