Euro Trades Near 7-Month Low Before Report on European Retail

By Stanley White

Sept. 3 (Bloomberg) -- The euro traded near a seven-month low against the dollar before a report that may show European retail sales declined in July from a year earlier.

The 15-nation currency was also close to its lowest in five months versus the yen on speculation the European Central Bank will signal this week it is concerned about growth in the region's economy. The pound traded near a two-year low against the dollar on concern the U.K is heading for a recession as house prices plunge.

``The euro and pound will continue to be sold against the dollar,'' said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co. Ltd., a unit of Japan's largest brokerage. ``The outlook for European economies has deteriorated a lot in a very short time span. It's only natural to speculate about when officials will have to lower rates.''

The euro traded at $1.4506 as of 9:56 a.m. in Tokyo, little changed from yesterday when it touched $1.4467, the weakest since Feb. 8. The U.S. currency was at 108.73 yen. The pound was at $1.7816 after reaching $1.7783 yesterday, the lowest level since April 2006. The euro was at 157.77 yen. It fell yesterday to 157.01 yen, the lowest since April. The euro may decline to $1.44 today, Amikura said.

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.

European Retail

European retail sales fell 2.1 percent in July from a year earlier, after a record 3.1 percent decline in the previous month, according to the median forecast of 18 economists surveyed by Bloomberg News. The European Union's statistics office, which started to compile the data in 1995, is scheduled to release the report today in Luxembourg.

``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.

Standard Chartered Plc and BNP raised their forecasts for the U.S. currency yesterday. London-based Standard predicts the dollar will rise to $1.44 per euro by year-end and $1.36 by the end of the first quarter, 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.

`Double Top'

A move through $1.4555, an extension of a decline from a ``double top'' in the euro-dollar, 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 $1.6038 on July 15.

The Fed has cut its target rate for overnight lending between banks from 5.25 percent in September 2007 to 2 percent in response to the housing slump and credit market losses.

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.

`Sterling Struggling'

The pound depreciated as much as 0.6 percent to 81.64 pence per euro yesterday, the weakest level since the European currency's debut. U.K. mortgage approvals dropped to the lowest level in nine years and manufacturing contracted, reports showed Sept. 1. The Bank of England will keep its target lending rate unchanged at 5 percent tomorrow, according to all of the 61 economists surveyed by Bloomberg News.

U.K. inflation will reach about 5 percent in coming months and may slow to below the central bank's 2 percent target in two years if the benchmark rate remains unchanged, BOE Governor Mervyn King said on 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.''

To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net.