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Euro Near One-Month Low as Citigroup Predicts Drop; Pound Gains

May 12 (Bloomberg) -- The euro was within 0.1 percent of the weakest level in a month against the dollar as Citigroup Inc. and UBS AG forecast further declines amid signs the European Central Bank will add further stimulus.

The 18-nation currency was little changed today even as ECB Vice President Vitor Constancio said its recent strength has had an impact. India’s rupee reached a nine-month high on speculation exit polls today will show a victory for the main opposition party. Sweden’s krona gained as a housing price indicator climbed to a seven-year high. The pound rallied as the Confederation of British Industry raised its U.K. economic growth forecast.

“We are bearish and think that finally the ECB is ready to back words with action,” said Geoffrey Yu, a foreign-exchange analyst at UBS in London. “The market is pricing in some degree of accommodation ahead. The level of the euro is going to jeopardize the ECB’s inflation forecasts.”

The euro was at $1.3759 at 7:38 a.m. in New York after dropping to $1.3745 on May 9, the lowest level since April 8. The single currency advanced 0.1 percent to 140.25 yen after sliding 1.2 percent last week. Japan’s currency fell 0.1 percent to 101.93 per dollar.

The euro may extend losses to around $1.33 into the third quarter, UBS’s Yu said.

Bearish Reversal

The common currency’s decline from last week’s high of $1.3993, the strongest since October 2011, has formed a bearish reversal pattern that should lead to further losses, according to Citigroup analysts including Shyam Devani in London.

“Not only did we see a daily reversal at the trend highs but also a bearish weekly reversal,” the analysts wrote. The euro “now looks vulnerable and is in danger of trending down over the weeks ahead,” they said. Citigroup is the world’s biggest currency trader, according to a Euromoney Institutional Investor Plc survey released last week. UBS is the fourth.

The euro has gained 5 percent in the past 12 months, the third-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar weakened 1.5 percent and the yen fell 1.9 percent.

“We are looking to what is happening to the exchange rate, and it has a material impact,” Constancio said today at a conference in Vienna. “If we take inflation that it was in mid-2012 until now, we estimate that the effect of the appreciation of the euro since then can explain a reduction of inflation in the euro area by 0.5 percentage point.”

Rupee Advances

The rupee reached the strongest since July versus the dollar before exit polls are allowed to be broadcast after 6:30 p.m. today in Mumbai.

The official results of the national election will be announced on May 16. Opinion polls indicate that the Bharatiya Janata Party will secure the most seats, beating the ruling Congress party that has been mired in corruption scandals and an economic slowdown.

The rupee was little changed at 60.05 per dollar after appreciating to 59.5175, the strongest since July 29, according to prices from local banks compiled by Bloomberg.

The krona rallied against all of its 16 major counterparts after SEB AB said in a statement its housing price indicator rose to 60 in May from 55 the previous month.

Sweden’s currency strengthened 0.3 percent to 9.0156 per euro and appreciated 0.3 percent to 6.5521 per dollar.

The pound rose for the first time in four days against the dollar as the CBI increased its forecast for U.K. growth this year to 3 percent from 2.6 percent.

The U.K. currency climbed 0.2 percent to $1.6886 after advancing to $1.6996 on May 6, the highest since August 2009. Sterling appreciated 0.2 percent to 81.49 pence per euro.

Yen Weakens

The yen fell versus 12 of its 16 major counterparts after Japan’s current account surplus shrank more in March than economists forecast.

Consumers bought items such as refrigerators and computers before the 3 percentage point tax rise to 8 percent on April 1. The increase in the levy will contribute to an estimated 3.3 percent contraction in the economy this quarter, according to economists surveyed by Bloomberg. The Bank of Japan will expand monetary stimulus by year-end, according to three-quarters of analysts in a separate survey.

“The deterioration in Japan’s balance of payments is the main factor why we think the yen will continue to weaken,” said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia in Sydney. “A greater-than-expected negative impact from the increased consumption tax boosts the risk of further easing by the BOJ.”

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