Euro drops to 2-month low as Draghi says growth to stay weak

EADS Earnings

Earnings forecasts released today by European Aeronautic, Defence & Space Co. suggest it anticipates the euro will strengthen. Europe’s biggest aerospace and defense company said its new hedge contract had an average rate of $1.29 per euro.

EADS, which hedges heavily to manage currency risk on future Airbus aircraft deliveries, takes a 1 billion-euro hit on earnings for every 10 cent increase in the euro against the dollar. One of the biggest problems for EADS is that most Airbus labor costs are in euros, but aircraft are paid for in dollars.

The euro has declined 1.1 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen dropped 1.4 percent, while the dollar gained 0.7 percent.

The yen rose against all 16 of its major peers as demand for the safety of Japan’s currency was boosted by speculation U.S. lawmakers will struggle to avert the looming fiscal cliff, the more-than $600 billion in tax increases and spending cuts set to be implemented in 2013 unless Congress acts.

‘Biggest Focus’

“The biggest focus of the market as we head into year-end will be the fiscal cliff,” said Noriaki Murao, managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Investors are buying safe currencies such as the dollar and yen.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, climbed 0.1 percent to 80.796 after rising to 81.001, the highest since Sept. 7.

The pound rose for a second day against the euro after the Bank of England said it would maintain its asset-purchase target at 375 billion pounds ($599 billion). The decision was predicted by 35 out of 45 economists in a Bloomberg survey.

The central bank completed its latest 50 billion pounds of bond purchases last week, and Deputy Governors Paul Tucker and Charles Bean have indicated asset purchases may no longer have the same impact on the economy as when first introduced in 2009.

The pound appreciated 0.2 percent to 79.73 pence per euro after strengthening 0.3 percent yesterday. Sterling was little changed at $1.5998.

Bloomberg News

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