Euro Weakens a Second Day on Expectations ECB to Lower Rates

By Ye Xie

May 6 (Bloomberg) -- The euro weakened against the dollar for a second day on speculation the European Central Bank policy makers will lower interest rates tomorrow and consider other measures to stimulate growth.


Norway’s krone gained versus the euro and dollar after the central bank cut the overnight deposit rate by a half-percentage point to a record low to spur the economy. The franc erased gains versus the euro as Thomas Jordan, a Swiss central bank governing board member, said policy makers stand ready to block any further “unwelcome” appreciation of the currency.

“The ECB will at least announce something unusual,” said Sean Callow, senior currency strategist at Westpac Banking Corp. in Sydney. “In terms of policy measures, they’ll be discussing the types of measures that would potentially weaken the euro.”


The euro dropped 0.3 percent to $1.3293 at 10:55 a.m. in New York, from $1.3330 yesterday. The euro traded at 131.23 yen, from 131.73. The dollar fetched 98.72 yen, from 98.82.


The krone appreciated 0.5 percent to 8.6944 per euro after the Oslo-based Norges Bank lowered the overnight deposit rate to 1.5 percent. The decision was in line with the median forecast of 10 economists surveyed by Bloomberg. Against the dollar, the krone increased 0.7 percent to 6.51 per dollar.


The franc was little changed at 1.5088 per euro after advancing as much as 0.2 percent to 1.5061. The Swiss National Bank will “act decisively” against any appreciation of the franc, Jordan said today in Zurich. The currency last traded as strong as 1.5 per euro on March 12, when the central bank began buying currencies to halt the franc’s appreciation.

ADP Employment Report

The dollar declined against the Swedish krona and dropped to near a seven-month low against the Australian currency as a report showed U.S. companies eliminated fewer jobs last month than economists forecast, reducing demand for safety.


U.S. companies eliminated 491,000 jobs in April after cutting 708,000 in the previous month, ADP Employer Services reported. The median forecast of 28 economists surveyed by Bloomberg was for the elimination of 645,000 jobs.


A Labor Department report in two days will show companies and government agencies shed 603,000 jobs last month, compared with 663,000 in March, according to the median forecast of 68 economists surveyed by Bloomberg News.


The ADP report “implies that we should see a lessening degree of job losses,” said Sacha Tihanyi, a currency strategist at Scotia Capital Inc. in Toronto. “We’ve seen some hesitance in the last few days, some signs of profit taking of some risky trades. The ADP number reversed things.”

Australia’s Dollar

Sweden’s krona advanced 0.5 percent to 7.9101 per dollar and Australia’s dollar rose 0.3 percent to 74.47 U.S. cents on speculation the 27 percent gain in the Standard & Poor’s 500 Index over the last two months will encourage investors to buy higher-yielding assets. The Aussie touched 74.79 yesterday, the strongest level since Oct. 6.


The Brazilian real advanced 0.5 percent to 2.1253 per dollar and the Mexican peso increased 0.4 percent to 13.2130 on speculation demand for emerging-market assets will rise.


The European Central Bank will lower the main interest rate by a quarter-percentage point to 1 percent tomorrow, according to the median forecast of 53 economists surveyed by Bloomberg.

ECB Views

The financial crisis needs “drastic” measures, Athanasios Orphanides, an ECB council member, said in Nicosia yesterday. Orphanides and George Provopoulos, another member, have indicated they may support cutting the target rate to less than 1 percent and buying debt to pump money into the economy.
The Federal Reserve’s stress-test results, to be released tomorrow, may show about 10 banks need new capital, people familiar with the matter said.


Regulators have determined that Bank of America Corp. requires about $34 billion in new capital, the largest need among the 19 biggest U.S. banks subjected to stress tests, said people with knowledge of the matter. Citigroup Inc.’s shortfall is more limited, and JPMorgan Chase & Co. doesn’t need a deeper reserve against losses, the people said.


Fed Chairman Ben S. Bernanke said yesterday in congressional testimony that another shock to the financial system would undercut the central bank’s forecast that the U.S. recession will give way this year to a slow recovery.


To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: May 6, 2009 11:00 EDT