Euro, Pound May Fall as Economic Reports Show Deeper Recession

By Oliver Biggadike and Ye Xie

April 9 (Bloomberg) -- The euro and pound may fall for a third day versus the yen after economic reports indicated the recession in Germany and the U.K. is deepening.

Mexico’s peso rose yesterday to a three-month high versus the greenback on the prospect of increased dollar inflows as the nation taps a credit line with the International Monetary Fund. Ireland’s top AAA credit rating was lowered one level by Fitch Ratings as economic turmoil fueled a surge in borrowing.

“Europe is lagging,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “We are telling investors to sell the euro rallies.”

The euro traded at 132.47 yen at 6:15 a.m. in Tokyo, after declining 0.6 percent yesterday. Sterling traded at 146.77 against Japan’s currency after falling 0.8 percent and fetched $1.4684 following a 0.3 percent decline. The dollar was at 99.75 yen, having lost 0.7 percent.

Some analysts said gains in the yen may be tempered before a Japanese report today forecast to show machinery orders, an indicator of capital investment, decreased for a fifth month. Orders dropped 6.9 percent in February from the previous month, according to a Bloomberg News survey before the report.

“Japan’s economy is in bad shape,” said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany’s second-largest lender. “There is no reason to buy the yen right now.”

Weaker Pound

The pound weakened versus the yen and dollar as the National Institute of Economic and Social Research said yesterday the U.K.’s economy contracted 1.5 percent in the first three months of the year following a decline in the fourth quarter. German exports dropped for a fifth month in February, falling 0.7 percent, the Federal Statistics Office said.

Ireland’s rating was dropped to AA+ with a “negative” outlook, indicating Fitch is more likely to lower the classification again than raise it or leave it unchanged. Ireland received the top rating in December 1998.

Standard & Poor’s lowered Ireland’s rating one step to AA+ on March 30. Moody’s Investors Service has placed Ireland’s rating up for review.

Mexico’s peso gained yesterday as much as 1.1 percent to 13.3212, the strongest level since January, after the central bank said last week it would seek a $47 billion credit line with the IMF.

Fed’s Minutes

The dollar remained lower versus the yen yesterday as minutes of the Federal Reserve’s March meeting showed policy makers feared the economy might fall into a self-reinforcing cycle of rising unemployment and slumping business and consumer spending.

That outlook prompted the Federal Open Market Committee in a unanimous vote to boost its open-market purchases of government and mortgage bonds by $1.15 trillion, continuing its unprecedented increase in money supplied to the economy.

The yen increased 1.8 percent to 12.04 versus Sweden’s krona and 0.5 percent to 80.74 against the Canadian dollar on speculation Japanese investors will reduce purchases of higher- yielding assets overseas.

“The recovery that we’re seeing in equity markets and the improvement in risk appetite is maybe a little premature,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “A consumer recovery would be necessary for an economic recovery to be sustained.”

Bed Bath & Beyond Inc. reported profit higher than some analysts estimated, pushing the shares up as much as 24 percent yesterday. The largest U.S. home-furnishings retailer said on April 7 that net income declined 18 percent in the three months ended Feb. 28.

Kazakhstan plans to tighten control over the country’s unofficial foreign-exchange market and the rates at which street traders buy and sell the tenge, the central bank told Bloomberg in an e-mail message. The former Soviet republic devalued its currency two months ago as economic growth slowed.

To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net