The euro declined to a one-week low against the dollar after a gauge of German business confidence unexpectedly dropped in September, adding to concern the debt crisis is hindering the region’s economy.
The 17-nation currency fell for a fifth day versus the yen after German Chancellor Angela Merkel and French President Francois Hollande clashed during the weekend on a timetable to introduce joint oversight of euro-area banks. The Ifo institute in Munich said its business climate index dropped for a fifth straight month. The Australian dollar weakened on speculation growth in China, its biggest trading partner, is worsening.
“The Ifo data cast doubt on Germany,” Dan Dorrow, head of research in Stamford, Connecticut at Faros Trading LLC, said in a telephone interview. “If you don’t have the pillar of growth there, it doesn’t bode well for building momentum in the euro.”
The euro dropped 0.6 percent to $1.2904 at 10:12 a.m. New York time, reaching the lowest level since Sept. 13. The shared currency fell 0.9 percent to 100.60 yen, extending its daily losing streak to the longest since the period ended July 24. The yen rose 0.3 percent to 77.97 per dollar.
The euro will weaken to $1.19 by year-end, said Raghav Subbarao, a foreign-exchange strategist at Barclays Plc in London. The common currency will decline to $1.27 by Dec. 31, according to the median estimate of analyst forecasts compiled by Bloomberg.
“The euro has lost momentum following its initial surge higher and looks constrained on any move above $1.30,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong, wrote in a note to clients. “Any upside in euro-dollar will be limited to resistance around $1.3180,” he said, referring to an area where sell orders may be clustered.
The yen strengthened versus all its major counterparts as Asian and European stocks slid, boosting demand for safer assets. The MSCI Asia Pacific Index of shares dropped 0.4 percent and the Stoxx Europe 600 Index slid 0.7 percent.
Japan’s currency tends to strengthen during periods of financial turmoil because the country’s current-account surplus means it isn’t reliant on foreign capital.
The yen has gained 6.1 percent in the past six months, the best performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 3.3 percent, and the dollar dropped 0.3 percent.
Japan’s economy has returned to a recovery path, according to minutes of the central bank’s August meeting released today in Tokyo. The Bank of Japan unexpectedly increased its asset- purchase fund to 55 trillion yen ($710 billion) at its meeting last week.
The euro may rise against the yen to 104.81, its strongest level since May 4, if it doesn’t fall below a level of so-called support, technical analysts Karen Jones and Axel Rudolph of Commerzbank AG in London wrote in a report today.
New Zealand’s dollar declined on speculation that disagreement among the euro region’s leaders is curbing prospects for growth, damping demand for higher-yielding assets. The so-called kiwi fell 1 percent to 82.06 U.S. cents, posting its biggest drop since July 23.
Australia’s dollar dropped against all except two of its 16 major peers as China’s Economic Information Daily said downward pressure on the Asian nation’s economy was increasing.
Europe’s debt problems are still at a “high risk” phase and the global economic recovery is “bumpy,” the newspaper cited Zhang Ping, head of the National Development and Reform Commission, as saying.
The so-called Aussie fell 0.5 percent to $1.0407, and declined 0.9 percent to 80.98 yen.
From the end of 2008 through July, no major currency rose as much as Australia’s dollar, thanks to booming shipments of iron ore and other commodities to China. Since then, it’s the worst performer as the engine of world growth slows.
The Aussie depreciated 1.5 percent in the past month, the second-biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders are betting Australia’s central bank will cut interest rates to boost growth, dragging down the currency even though the Standard & Poor’s GSCI Index of commodities has risen almost 20 percent from its low this year in June.
“The Australian dollar is very expensive from whichever metrics you look at,” Dagmar Dvorak, a director of fixed-income and currencies in London at Baring Asset Management, which oversees $50 billion, said in an interview on Sept. 20. “When a currency overvaluation is that extreme, you have to question what could be a trigger that stops it. For the Aussie, it’s the economic slowdown in China and falling commodity prices.”
The Ifo institute said its business climate index, based on a survey of 7,000 executives, dropped to 101.4 from 102.3 in August. That’s the lowest reading since February 2010. Economists predicted an increase to 102.5, a Bloomberg News survey showed.
Merkel and Hollande, meeting on Sept. 22 to mark Franco- German reconciliation after World War II, failed to mask their differences on a planned banking union meant to contain the debt crisis. “The earlier, the better,” Hollande told reporters in the German town of Asperg. Merkel said there’s no point doing something fast if it then doesn’t work.
Earlier optimism that European leaders were making progress on containing the debt crisis saw the euro rise as high as $1.3172 on Sept. 17, the strongest since May 4.