Will EU ramp up as Fed tapers?

Currency update

The euro fell for a second day against the dollar as weaker-than-forecast factory output in the region prompted concern that the European Central Bank may consider further monetary stimulus.

The 18-nation currency slid versus most of its 16 major peers after Reuters reported that ECB Executive Board member Benoit Coeure said the central bank is “very seriously” considering negative deposit rates. The pound rose the most in eight weeks versus the euro as the Bank of England said the U.K.’s economic recovery is gaining momentum. The dollar fell against the yen before data tomorrow projected to show U.S. retail sales stalled in January.

“The euro has lost a lot of ground,” Alex Edwards, London-based manager of corporate business at currency brokerage UKForex, a subsidiary of OzForex Group, said in a phone interview. “There are still threats of deflation, and we expect to see more of these comments in the run up to the ECB meeting next month. There’s a real chance they’ll cut rates into negative territory.”

The euro dropped 0.3 percent to $1.3596 at 11:43 a.m. New York time, after climbing to $1.3683 yesterday, the highest since Jan. 29. The shared currency lost 0.4 percent to 139.36 yen, the first decline in five days. The dollar fell 0.1 percent to 102.48 yen.

Low Volatility

The JPMorgan G7 Volatility Index fell for a seventh day to 7.73 percent, touching the lowest since Oct. 30. The gauge reached a four-month high of 8.79 on Feb. 3.

South Korea’s won advanced to a three-week high as Federal Reserve Chairman Janet Yellen signaled policy continuity yesterday by pledging the U.S. central bank will reduce stimulus in “measured steps.” The currency appreciated 0.8 percent to 1,062.65 per dollar after climbing to 1,062.16, the strongest since Jan. 20.

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