Euro weakens amid European bank divergence

The euro traded at almost its lowest level versus the dollar since November as investors held the largest position in two years, betting on a drop in the currency before the region’s central bank meets this week.

The pound (CME:B6U14) snapped five days of declines before reports this week that economists forecast will show growth. India’s rupee (CME:H3U14) strengthened as emerging-market currencies gained for the first time in eight days. Europe’s common currency slid 3.2% in the past three months as the European Central Bank cut interest rates to spur inflation that slowed in July to the weakest in almost five years.

“The downside risk for the euro persists, and our view is that the currency has further to go,” said Valentin Marinov, head of European Group of 10 currency strategy at Citigroup Inc. in London. “The euro weakness was driven mostly by the ECB’s policy and we expect more from the central bank. Their task is far from done.”

The euro (CME:E6U14) was little changed at $1.3422 as of 8:41 a.m. New York time after touching $1.3367 on July 30, its lowest level since Nov. 12. It was at 137.71 yen (CME:J6U14). The Japanese currency was little changed at 102.59 per dollar after depreciating 0.8% last week, the most since the period through April 18.

Marinov recommended selling the euro against its U.K. counterpart, predicting that it will weaken to 77 pence by the end of the year as divergence between the ECB and the Bank of England widens.

Rupee, Pound

The rupee gained the most among 24 emerging-market currencies tracked by Bloomberg, rising 0.4% after disappointing U.S. jobs data Aug. 4 pushed back speculation on when the Federal Reserve will raise interest rates.

The Indonesian rupiah rose 0.4% and South Korea’s won added 0.3%. The Hungarian forint fell the most, 0.2%.

A gauge that tracks the performance of 20 emerging-market currencies versus the dollar rose 0.1% to 91.5813, the first advance since July 23.

The pound gained against most of its 16 main peers before reports economists forecast will show U.K. house prices rose in July, industrial production increased and services activity expanded.

Sterling added 0.1% to 79.73 pence per euro after weakening 0.9% in the five days through Aug. 1, the steepest depreciation since the period ended Feb. 21. The U.K. currency added 0.1% to $1.6836.

Sterling rose 10% in the past 12 months, making it the best performer among developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The euro added 0.3%, the dollar fell 0.9% and the yen dropped 4.9%.

Net Futures

The Bloomberg Dollar Spot Index fluctuated after employers added fewer jobs than forecast in July, boosting payrolls by 209,000, less than the 230,000 predicted by analysts in a Bloomberg survey. Traders see a 57% chance Fed will raise its rate target to at least 0.5% by July 2015, up from 54% on July 1, based on futures contracts.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was at 1,020.37, little changed from last week when it added 0.7%, the most since the period ending Jan. 17. It touched 1,023.42 on Aug. 1, the highest since March 20.

Aggregate net futures positions wagering on gains in the U.S. currency against major peers -- the yen, euro, pound, franc, Mexican peso and the dollars of Australia, Canada and New Zealand -- rose to 13,297 last week, turning positive for the first time since April.

U.S. data tomorrow is forecast by economists to show the Institute for Supply Management’s non-manufacturing index rose to 56.5 in July from 56 in June, according to a separate survey. Readings greater than 50 signal expansion.

ECB Policy

The ECB will probably keep policy unchanged when it meets Aug. 7 as recent data hasn’t yet been of “sufficient magnitude” to warrant an immediate policy response, Royal Bank of Canada strategists including Adam Cole, head of Group of 10 currency strategy in London, wrote in a note to clients today.

Consumer prices in the 18-nation currency bloc rose 0.4% from a year earlier in July compared with a gain of 0.5% in June, a July 31 report showed. That was the weakest since October 2009 and below the median forecast in a Bloomberg News survey of economists.

Futures traders’ bets that the euro will decline against the dollar rose to the most since August 2012, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an depreciation in the euro compared with those on a rise -- net shorts -- was 108,075 on July 29, compared with 88,823 a week earlier.

A report today showed investors’ optimism in the euro bloc has waned. An index of confidence in the region declined to 2.7 in August from 10.1 in July, Sentix research institute said. Economists had predicted a decline to 9, according to a Bloomberg News survey.

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