Euro Falls Against Dollar on Concern Economy Headed for Slump

By Agnes Lovasz and Stanley White
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Sept. 3 (Bloomberg) -- The euro fell to the lowest in more than seven months against the dollar after reports showed business investment, exports and retail sales declined, adding to evidence of an economic slump in the single-currency region.

The 15-nation currency also dropped to a five-month low versus the yen on speculation the European Central Bank will signal concern tomorrow the economic outlook in the region is deteriorating. The pound traded near a two-year low against the dollar on concern the U.K. is headed for a recession. The South Korean won was at the weakest in four years on speculation international investors are selling the country's assets.

``We're getting a fairly consistent picture of downside surprises in the euro zone and upside surprises in U.S. data,'' said Adam Cole, head of global currency strategy at RBC Capital Markets in London. ``The euro will remain a net loser as the dollar continues to appreciate.''

The euro declined to $1.4385, the lowest since Jan. 22, before trading at $1.4426 as of 7:37 a.m. in New York, from $1.4520 yesterday. The dollar was little changed at 108.49 yen. The pound dropped to $1.7668, the lowest level since April 2006. The euro declined to 156.26 yen, the weakest since the end of March, from 157.68 yen, before trading at 156.52 yen.

European retail sales fell 0.4 percent in July from June, the European Union's statistics office said from Luxembourg today. They were forecast to rise 0.1 percent, according to the median forecast of 25 economists surveyed by Bloomberg News.

Investment by companies slid 1.2 percent, the first decline in five years, and household spending dropped 0.2 percent after stagnating in the previous three months, separate EU data showed today. Overall gross domestic product fell 0.2 percent, matching an initial estimate published on Aug. 14.

Dollar's Surge

The U.S. currency surged 6 percent versus the euro in August, its biggest monthly gain since the European currency started trading in 1999. The economies of Europe and Japan shrank in the second quarter, while U.S. gross domestic product expanded at a 3.3 percent annual pace.

The European Central Bank will hold its main refinancing rate at a seven-year high of 4.25 percent at its meeting tomorrow, according to all but one of the 53 analysts surveyed by Bloomberg News.

``The euro seems poised to grind lower,'' said Mitsuru Sahara, senior currency sales manager in Tokyo at Bank of Tokyo- Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly listed lender. ``Higher-yielding currencies are losing their luster because the economic outlook suggests interest rates in several countries are going to start falling.''

The euro may decline to $1.4430 today, he said.

Forecast Change

Standard Chartered Plc and BNP Paribas SA raised their forecasts for the U.S. currency yesterday. London-based Standard Chartered predicts the dollar will rise to $1.44 per euro by year-end and $1.36 by March 31, compared with previous forecasts of $1.49 and $1.42. BNP, based in Paris, forecasts the dollar will gain to $1.42 versus the euro and $1.71 against the pound by year-end, stronger than the old forecasts of $1.45 and $1.88.

``There is no reason to buy the euro from a cyclical perspective,'' Hans-Guenter Redeker, global head of currency strategy at BNP Paribas SA, the most accurate currency forecaster in a 2007 Bloomberg survey, said in a research note.

The dollar rose against the yen earlier on speculation a decline in oil prices will support economic growth in the world's largest energy consumer. Crude oil for October delivery fell 1.3 percent to $108.32 a barrel, near a five-month low of $105.46 reached yesterday.

``The dropping commodity prices tend to benefit the dollar,'' said Magnus Prim, chief foreign-exchange strategist at Skandinaviska Enskilda Banken in Singapore. ``Even without that, focus has shifted to the weakness in the euro area. That hasn't fully been priced in yet.''

`Sterling Struggling'

The pound was at 81.34 pence per euro, near a record low of 81.64 pence reached yesterday. British consumer confidence stayed at a four-year low in August, according to a survey published today by Nationwide Building Society, the nation's second-biggest mortgage lender. The Bank of England will keep its target lending rate at 5 percent tomorrow, according to all 61 economists surveyed by Bloomberg News.

U.K. inflation will accelerate to about 5 percent in coming months before slowing to below the central bank's 2 percent target in two years if the benchmark rate remains unchanged, BOE Governor Mervyn King said Aug. 13.

``Sterling is struggling to shore up support ahead of the BOE meeting,'' analysts led by Mansoor Mohi-uddin, Zurich-based chief currency strategist at UBS AG, the world's second-largest currency trader, wrote in a research note yesterday. ``Sterling weakness will continue while the BOE remains trapped by above- target inflation.''

Won Loss

The South Korean won declined to a four-year low of 1,159.05 per dollar before closing at 1,148.55, from 1,133.75 yesterday. UBS AG and ABN Amro Bank NV predicted further declines in the currency, Asia's worst performer, as overseas investors will keep selling the nation's assets.

Gains in the dollar may be limited by speculation a weakening U.S. labor market will damp consumer spending.

U.S. nonfarm payrolls fell by 75,000 jobs in August, faster than the previous month's decline of 51,000, according to the median estimate in a Bloomberg News survey before the Labor Department releases the report Sept. 5.

``I don't think the U.S. fundamentals at all support the idea of a stronger U.S. dollar going into next year,'' said Clifford Bennett, chief economist at Sonray Capital Markets Ltd., in an interview with Bloomberg Television. ``The dollar is going to turn around at some point.''

The euro's decline through $1.4555, an extension of a decline from a ``double top,'' signaled the European currency may fall to $1.4310, a level last reached in December, wrote Kevin Edgeley, an analyst at Goldman Sachs Group Inc. in London who uses charts to predict currency movements, in a research note yesterday.

A double top occurs when a currency makes two successive peaks, often indicating a trend's reversal. The euro reached $1.6019 on April 22, dropped to a two-month low of $1.5285 on May 8, and rose to the record of $1.6038 on July 15.

To contact the reporters on this story: Agnes Lovasz in London at alovasz@bloomberg.net; Stanley White in Tokyo at swhite28@bloomberg.net