The euro traded at almost a three-week low against the dollar amid speculation the European Central Bank will signal it is open to cutting its benchmark interest rate when policy makers meet this week.
Europe’s shared currency declined versus 11 of its 16 major counterparts after a report showed producer-price inflation in the euro-area slowed in November. The yen strengthened from almost the weakest level since July 2010 against the dollar even amid media reports that the government will announce additional stimulus measures. The franc weakened after Swiss National Bank Governing Board member Fritz Zurbruegg said the central bank can’t raise borrowing costs.
“The ECB meeting will be the focus this week,” said Jane Foley, a senior currency strategist at Rabobank International in London. “If there is more speculation about the ECB cutting interest rates that could undermine the euro against the dollar.”
The euro dropped as much as 0.4 percent to $1.3017 before trading little changed at $1.3059 at 9:01 a.m. New York time. It touched $1.2998 on Jan. 4, the lowest level since Dec. 12. The single currency fell 0.4 percent to 114.70 yen. Japan’s currency strengthened 0.4 percent to 87.84 per dollar after depreciating to 88.41 on Jan. 4, the weakest since July 15, 2010.
ECB President Mario Draghi’s Governing Council, which cut economic and inflation projections last month, will keep its main refinancing rate at a record low of 0.75 percent on Jan. 10, according to the median estimate of 55 economists in a Bloomberg News survey. Five predict the central bank will reduce the benchmark to 0.5 percent.
Citigroup Inc. forecast the ECB will cut rates as soon as February. “Signals by President Draghi that the Governing Council may be moving closer to lowering rates could add to the cyclical headwinds” for the euro, London-based currency strategists Valentin Marinov and Josh O’Byrne, wrote today in a note to clients.
Producer prices in the euro region rose 2.1 percent in November from a year earlier, after a 2.6 percent increase in October, the European Union’s statistics office in Luxembourg said. Economists forecast a gain of 2.4 percent, a Bloomberg News survey showed.
Futures traders reversed bets the euro will decline against the dollar last week, positioning for the first time since August 2011 that the shared currency will appreciate, according to figures from the Commodity Futures Trading Commission.
The difference in the number of positions by hedge funds and other large speculators on an advance in the euro compared with those on a drop was 5,126 on Jan. 1, compared with a net 2,549 positions it would decline a week earlier. The figures reflect holdings in currency-futures contracts at the Chicago Mercantile Exchange as of Jan. 1.
The euro has strengthened 0.8 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar dropped 0.4 percent, while the yen tumbled 7.1 percent.
The yen rallied after falling against the dollar for eight consecutive weeks amid speculation Japan’s newly elected Prime Minister Shinzo Abe will boost efforts to spur growth.
The government will announce 12 trillion yen of fiscal stimulus this month to boost the nation’s shrinking economy, the Yomiuri newspaper said today. The extra budget for this fiscal year through March will include 5 trillion yen to 6 trillion yen of public-works spending, the newspaper reported, without saying where it obtained its information.
“The yen looks oversold,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Still, we think the trend is still very strongly for a weaker yen and this is a breather. Policy actions could reinforce yen selling.”
The yen’s 14-day relative strength index versus the dollar dropped to 15.5 on Jan. 4, below the level of 30 that some traders view as a signal an asset has fallen too fast. The index was at 20.1 today.
Switzerland’s franc fell against 13 of its 16 major peers after Zurbruegg said that while the central bank is concerned about developments in the Swiss property market it can’t raise borrowing costs.
“We have a very special situation of interest rates at zero and that from a monetary policy standpoint we absolutely can’t raise rates,” he said in an interview with Swiss national television today.
The Swiss central bank kept its benchmark interest rate at zero percent on Dec. 13 and maintained the currency ceiling at 1.20 francs per euro. Its next decision is on March 14.
The franc weakened 0.1 percent to 92.54 centimes against the dollar and was little changed at 1.2088 per euro.