Euro drops vs. most major peers as Draghi joins IMF in alert

Economic Contraction

The European currency region’s economy will contract 0.4 percent this year, 0.1 percentage point less than forecast in July, and grow 0.2 percent in 2013, versus 0.7 percent predicted three months ago, the Washington-based IMF said in a report.

The world economy will grow 3.3 percent this year, the slowest pace since the 2009 recession, compared with the July forecast of 3.5 percent, the IMF said. The risk of a steeper global slowdown is “alarmingly high,” the fund said.

The euro slid as finance ministers from all 27 nations in the European Union convene in Luxembourg today.

IMF Chief Economist Olivier Blanchard said at a press conference in Tokyo that yields on Spanish and Italian bonds, which fell after the ECB announced plans to buy government debt, could rise if the countries don’t request bailouts.

The euro slid 1.9 percent in the past six months, the worst performance after the Swiss franc’s 2.7 percent drop among the 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The yen gained 4.2 percent, while the dollar declined 0.3 percent.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and the yen, rose 0.3 percent to 79.755.

Stronger Greenback

The world’s most-accurate foreign-exchange strategists say the dollar will strengthen even as the Federal Reserve debases it, unlike the previous two rounds of economic stimulus, when cash injections weakened the currency.

Fed Chairman Ben S. Bernanke’s $40 billion-a-month of bond purchases announced last month will leave a stronger currency in 2013, say 9 of the 10 forecasters with the lowest margins of error in the six quarters ended Sept. 28 as measured by Bloomberg. Wells Fargo & Co. and Westpac Banking Corp., which tied for most-accurate, expect little damage from efforts to stimulate the economy and the so-called fiscal cliff of spending cuts and tax increases scheduled for next year.

Bloomberg News

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