Euro Weakens as IMF Says Recovery May Be Sluggish, Stocks Drop

By Yoshiaki Nohara and Ron Harui

Nov. 17 (Bloomberg) -- The euro weakened against the yen for a fourth day and slipped against the dollar after an International Monetary Fund official said the global economic recovery may be sluggish and Asian stocks fell.

The European currency declined against 9 of its 16 most- traded counterparts after Dominique Strauss-Kahn, the managing director of the IMF, spoke in a media briefing in Beijing. Australia’s currency dropped from near the strongest level in 15 months after minutes from the central bank’s most recent meeting cast doubt on a third-straight increase in key lending rates.

“As the global economic outlook remains uncertain, investors are unwinding some positions on higher-yielding assets funded in the yen and the dollar,” said Toshiya Yamauchi, manager of the foreign-exchange margin-trading department at Ueda Harlow Ltd. in Tokyo.

The euro traded at 133.16 yen as of 7:10 a.m. in London, giving up gains of as much as 0.2 percent, from 133.33 in New York yesterday. The dollar climbed to $1.4962 per euro from $1.4970. The greenback traded at 89.00 yen from 89.05 yen, after falling to 88.76 yesterday, the lowest since Oct. 9.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency’s value against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, traded at 74.935 from 74.894. The gauge slumped 0.6 percent yesterday, touching 74.679, the weakest since August 2008.

Asian stocks

Japan’s currency rebounded as the Nikkei 225 Stock Average reversed gains to fall 0.6 percent, paring demand for higher- yielding assets. The MSCI Asia Pacific Index of regional shares dropped 0.3 percent after earlier rising 0.5 percent.

The dollar rebounded amid speculation investors trimmed bets against the currency after it failed to weaken beyond “psychological” support at $1.50 per euro, said Nobuaki Kubo, vice president of foreign exchange in Tokyo at BBH Investment Services Inc., a unit of New York-based Brown Brothers Harriman & Co.

“It’s probably some position-adjustment buying of dollars,” Kubo said. “The markets look like they’ll consolidate for now.” Support refers to a level where buy orders may be clustered.

Futures traders reduced bets the dollar will fall versus seven major currencies, according to data from the Washington- based Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a drop in the U.S. currency compared with those on an advance -- so-called net shorts -- was 164,360 on Nov. 10, compared with net shorts of 175,462 a week earlier.

In a currency carry trade, the investor makes money by borrowing in a country with low rates, converting the money to a currency where borrowing costs are higher, and lending the money at that higher rate. Rates are as low as zero in the U.S., compared with 3.5 percent in Australia and 2.5 percent in New Zealand.

‘Open Question’

Australia’s central bank said the pace of interest-rate increases is an “open question” as it balances the risk of keeping borrowing costs too low against an economy that may cool as government stimulus abates.

“If economic conditions evolved as expected, further gradual adjustment in the cash rate would most likely be appropriate over time,” officials said in minutes released today in Sydney of their Nov. 3 meeting, at which they raised the overnight cash rate target to 3.5 percent.

Australia’s dollar fell to 93.39 U.S. cents from 93.69 cents yesterday, when it reached 94.06 cents, the strongest since Aug. 1, 2008.

The IMF’s Strauss-Kahn said the global recovery is likely to be sluggish, though he doesn’t expect a “double dip.” He spoke at a briefing in Beijing today. China’s yuan could become a part of the IMF’s system of so-called special drawing rights “after a while,” he said.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.