Dollar falls as Yellen says economy still needs Fed’s stimulus

ECB Outlook

The shared currency dropped earlier as factory production in the region dropped 0.5% after rising 1% in August, Eurostat said. Economists surveyed by Bloomberg predicted a decline of 0.3%. GDP growth slowed to 0.1% in the third quarter, from 0.3% in the previous three months, a separate survey showed before tomorrow’s report.

Europe’s shared currency strengthened earlier after the ECB’s Peter Praet said negative rates and asset purchases remain an option, according to a Wall Street Journal article.

The euro declined the most in two years on Nov. 7 after ECB President Mario Draghi unexpectedly cut its main refinancing rate to a record-low 0.25%, saying “monetary-policy stance will remain accommodative for as long as necessary.” Europe’s inflation unexpectedly slowed in October to 0.7%. That compares with an ECB target of “close to but below” 2%.

“This is really the first time in recent history an ECB policy maker suggests QE is possible in the euro zone,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “I’d take it with a grain of salt. The likelihood of such a scenario is still quite low.”

Pound ‘Positive’

The pound climbed versus all but one of its 16 major peers after the office for National Statistics said the jobless rate as measured by International Labour Organisation standards fell to 7.6% in the three months through September.

Unemployment is more likely than not to reach 7% in the third quarter of 2015, based on the path of interest rates projected by investors, the Bank of England said in the Inflation Report. Policy makers have said they will increase the benchmark rate from a record-low 0.5% after unemployment falls to 7%.

“Both the Bank of England’s new projections and the development in terms of employment should be positive for the pound,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. “The pound has room to strengthen further although some may argue that a lot of that has already been in the price.”

Krona Drops

Sterling strengthened 0.5% to 84.03 pence per euro after weakening 0.8% yesterday. The pound rose 0.9% to $1.6040 after falling to $1.5855 yesterday, the lowest since Sept. 13.

The krona dropped for a second day versus the euro as Borg told reporters in Stockholm that deflation was a serious concern.

The krona fell 0.2% to 8.9601 per euro after sliding to 8.9987, the weakest level since June 2012. The currency was little changed at 6.6560 per dollar.

The euro gained 6.4% this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 3.9% and the yen tumbled 11%.

www.bloomberg.com

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