Euro Weakens Versus Dollar, Yen on Concern Producer Prices Fell

By Ron Harui

Aug. 4 (Bloomberg) -- The euro fell against the dollar and the yen before a European report that economists said will show producer prices fell at a record pace in June, backing the case for the region’s central bank to keep borrowing costs low.

The Australian dollar retreated from a 10-month high versus its U.S. counterpart after the Reserve Bank of Australia said the lowest interest rates in half a century were “appropriate” given the economic conditions, damping the appeal of the South Pacific nation’s assets. The yen strengthened against 14 of 16 major currencies as Asian stocks trimmed gains, spurring investors to reduce holdings of higher-yielding securities.

“The European report may indicate deflation risks in the euro area are increasing,” said Hideki Amikura, deputy general manager of foreign exchange in Tokyo at Nomura Trust and Banking Co. “The central bank probably won’t alter policy settings. The euro is likely to weaken.”

The euro dropped to $1.4387 as of 6:45 a.m. in London from $1.4412 in New York yesterday, when it rose to $1.4445, the strongest level since Dec. 18. The European currency declined to 136.86 yen from 137.31 yen. Japan’s currency traded at 95.12 per dollar from 95.26.

Australia’s dollar pared gains to trade at 84.23 U.S. cents from 84.37 cents before the RBA’s statement and 84.20 cents yesterday. It earlier climbed as high as 84.71 cents, the strongest since Sept. 22.

Factory-gate prices in the 16 nations that share the euro slid 6.6 percent in June from a year earlier, the biggest drop since the data series began in January 1981, after a 5.8 percent decline in May, according to a Bloomberg News survey. The European Union’s statistics office will release the report today.

To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net.

Last Updated: August 4, 2009 01:47 EDT