July 2 (Bloomberg) -- The euro fell for a second day versus the dollar as investors prepared for speeches from Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi.
The 18-nation currency dropped to a 21-month low versus the pound after French Prime Minister Manuel Valls said in an interview with Les Echos newspaper that the ECB needs to go further to weaken the euro. Policy makers meet in Frankfurt tomorrow. The greenback snapped a five-day decline against a basket of major peers before Yellen speaks today in Washington. Australia’s currency tumbled after the trade deficit widened more than economists forecast.
“The market is just trying to weigh up what’s going to come out,” said Jane Foley, senior currency strategist at Rabobank International in London. “Given the euro-dollar exchange rate’s importance for the disinflationary risk, there is some anticipation that Draghi will be dovish. Janet Yellen is, of course, due to speak. There is the opportunity for her to answer a question on monetary policy and potentially re- establish her dovish theme.”
The euro declined 0.1 percent to $1.3666 at 7:38 a.m. New York time after rising to $1.37 yesterday, the strongest level since May 21. It slid 0.1 percent to 138.68 yen. The Japanese currency was little changed at 101.49 per dollar.
ECB policy cannot just focus on interest rates and an overvalued euro is bad for industry and growth, French President Valls told Les Echos in an interview published today.
Draghi faces pressure to act on the shared currency after it strengthened the most in three months against the dollar following the ECB’s June 5 meeting, when policy makers cut the refinancing rate and moved the deposit rate below zero for the first time. Draghi also said he will introduce targeted offerings of liquidity to banks to encourage them to lend, and that officials will start work on purchases of asset-backed securities.
All economists surveyed by Bloomberg forecast the ECB will keep rates unchanged tomorrow.
Yellen will give a speech at the International Monetary Fund today in Washington. Traders are pricing in a 42 percent chance that the Fed raises borrowing costs from near zero by June 2015, down from 51 percent odds before Yellen reiterated on June 18 that rates would stay low for a “considerable time.”
Employment at U.S. companies increased by 205,000 workers in June from May, according to the median estimate of economists in a Bloomberg News survey before a report from Roseland, New Jersey-based ADP Research Institute today. A Labor Department report tomorrow will show a 215,000 jobs gain, a separate Bloomberg survey predicts.
“The U.S. data has been weakening somewhat, and that is accelerating dollar selling,” said Yuki Sakasai, a foreign- exchange strategist at Barclays Plc in New York. “We need some hawkish signals from the Fed to change that trend.”
Australia’s dollar fell the most among major peers after the statistics bureau reported the trade deficit expanded to A$1.9 billion in May, matching the largest since November 2012, and almost 10 times wider than the A$200 million shortfall predicted by economists in a Bloomberg survey.
Outbound shipments shrank 5 percent from the previous month. Prices of iron ore, Australia’s biggest export, fell 30 percent in the first two quarters, according to data from The Steel Index Ltd.
The Aussie dropped 0.4 percent to 94.55 U.S. cents after yesterday touching 95.05 cents, the strongest since Nov. 7.
“The declines that we’re seeing in some of our bulk commodity prices are feeding through into the trade numbers,” said Besa Deda, Sydney-based chief economist at St. George Bank Ltd. “It was a surprise outcome. The Australian dollar has come under downward pressure on the back of that.”
The pound rose for a third day versus the euro after a report showed U.K. construction growth accelerated in June, adding to signs of strength in the economy. It also appreciated to the highest level against the dollar in five years.
Sterling appreciated 0.2 percent to 79.61 pence per euro after reaching 79.51 pence, its strongest level since October 2012. It rose 0.1 percent to $1.7164 after touching $1.7177, the highest since October 2008.
The Hong Kong dollar was little changed at HK$7.7501 per dollar after the city’s de facto central bank stepped in for the first time since December 2012 to prevent it from rising against the U.S. currency.
The Hong Kong Monetary Authority said it bought $2.1 billion within the past 24 hours at HK$7.75 a dollar, the upper limit of a convertibility range that triggers intervention.
Deutsche Bank AG’s FX Volatility Index was at 5.23 percent, the lowest closing level in figures dating back to August 2001.