By Bo Nielsen and Ye Xie
April 20 (Bloomberg) -- The euro dropped to less than $1.30 for the first time in a month and fell versus the yen on bets disagreement is deepening among European Central Bank policy makers on measures needed to combat the recession.
The 16-nation currency declined against the Swiss franc after Financial Times Deutschland cited ECB Executive Board member Lorenzo Bini Smaghi as saying the bank’s 1.25 percent target lending rate is “very close” to its floor. The yen and dollar rose against all of the other major currencies on increased demand for safety.
“The ECB is the focal point,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “People are looking for reasons to sell the euro. We are seeing a significant liquidation of the trades that outperformed in recent weeks as we are moving back to risk aversion.”
The euro dropped 0.6 percent to $1.2970 at 9:04 a.m. in New York, from $1.3044 on April 17. It earlier fell to $1.2947, the lowest level since March 17. Europe’s currency slid as much as 1.5 percent to 127.41 yen, the lowest level since March 30, before trading at 127.59, compared with 129.33. The euro lost 0.2 percent to 1.5164 francs. The yen gained 0.8 percent to 98.37 per dollar from 99.16.
Europe’s currency will decline to “mid-$1.27” should it fall below $1.2946, a 61.8 percent retracement of the currency’s 8 percent rise from March 4 to March 19, according to Osborne.
The yen appreciated 2.1 percent to 55.15 per New Zealand dollar and 3.2 percent to 69.41 per Australian dollar as stocks declined on speculation U.S. banks face more losses, reducing speculation that investors will buy higher-yielding assets.
Stress Tests
President Barack Obama said yesterday he will demand “accountability” from any U.S. banks that require additional taxpayer money following “stress tests” being conducted by regulators. The tests are being used to determine whether the companies have enough capital to cover losses over the next two years should the recession worsen. The Federal Reserve plans to give results May 4.
The Australian dollar fell as much as 2.5 percent to 70.41 U.S. cents, the biggest intraday decline since Feb. 10. The Canadian dollar dropped as much as 1.7 percent to C$1.2342 per U.S. dollar, the weakest level since April 9.
Europe’s Dow Jones Stoxx 600 Index slipped as much as 3 percent, the most since March 30, and futures on the Standard & Poor’s 500 Index fell 1.8 percent.
The euro dropped to a three-week low versus the yen on signs the recession in the 16-nation region is deepening. The contraction in Germany, Europe’s largest economy, worsened in the first quarter, the country’s central bank said.
‘Recessive’ Trend
“The recessive underlying trend in the German economy deepened after real gross domestic product fell by 2.1 percent” in the three months to December, the Frankfurt-based Bundesbank said in its monthly bulletin today.
Bini Smaghi, asked if he favors cutting the benchmark rate to 1 percent and leaving it there, said “it would be more credible to act that way,” according to Financial Times Deutschland. Council members George Provopoulos from Greece and Athanasios Orphanides of Cyprus have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy. The ECB’s next meeting is May 7.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net
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