Euro Remains Lower Against Most Peers Before ECB Meets

The euro fell for second day before the European Central Bank meets tomorrow to discuss measures to tackle the region’s debt crisis.

ECB President Mario Draghi told lawmakers in a closed-door session in Brussels this week the bank’s primary mandate compels it to intervene in bond markets to ensure the euro’s survival. The 17-nation currency remained lower versus most of its major counterparts before data forecast to show retail sales declined and services contracted in the euro area. The Australian dollar touched a six-week low after the government reported second- quarter gross domestic product grew less than analysts expected.

“A lot of expectations have been built into the ECB meeting since President Draghi’s comments,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “There’s a risk of a disappointment, so the euro may face some downward pressure into the meeting.”
The euro fell 0.2 percent to $1.2538 as of 12:36 p.m. in Tokyo from yesterday when it declined 0.2 percent. It climbed to $1.2638 on Aug. 31, the strongest since July 2. The shared currency dropped 0.2 percent to 98.33 yen. The yen was little changed at 78.44 per dollar.

‘Primary Mandate’

ECB President Draghi said Sept. 3 that the bank has lost control of borrowing costs in the monetary union, according to a recording of his comments obtained by Bloomberg News. Bond purchases are “a way to comply with our primary mandate,” Draghi said, adding: “Frankly, all this also has to do very much with the continuing existence of the euro.” The central bank announces its next policy decision tomorrow.
Germany’s Constitutional Court is set to rule on the legality of the European Stability Mechanism, the region’s permanent bailout fund, on Sept. 12. The ECB may delay giving full details of Draghi’s bond-buying plan until after the ruling, two central bank officials who spoke on condition of anonymity, said on Aug. 24.
“Ahead of the German Constitutional Court ruling, I’m not sure if the ECB can deliver all that they want to,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “The dollar is finding some support. It’s difficult to see a clear picture ahead of risk events.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, added 0.2 percent to 81.459.

Worst Performers

Demand for the euro and the so-called Aussie was limited amid signs the global economy is slowing. The common currency has dropped 3.6 percent in the past six months, the worst performance among 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Indexes. The Australian currency weakened 2.6 percent in the same period, the third-biggest loser.
A final reading of an index based on a survey of purchasing managers in services industries in the euro area may confirm a drop to 47.5 in August from 47.9 a month earlier, below the 50 level which indicates contraction, according to the median estimate of economists surveyed by Bloomberg before Markit Economics releases its figures today.
Economists in a separate Bloomberg poll predict a European Union statistics report today will show retail sales fell 1.7 percent in July from a year earlier.
Australia’s economy expanded 0.6 percent in the second quarter from the previous three-month period, when it grew a revised 1.4 percent, the statistics bureau reported today. The median estimate of economists in a Bloomberg survey was growth of 0.7 percent.

A private survey showed the country’s services industry contracted in August at the fastest pace in fourth months. The performance of services index fell 4.1 points to 42.4 last month, the biggest drop since April, Commonwealth Bank of Australia and the Australian Industry Group said today.
Australia’s dollar touched $1.0190, the weakest level since July 25, before trading at $1.0218, 0.1 percent below yesterday’s close.

“The outlook for Aussie remains rather poor given the deterioration in the global growth backdrop,” said Sue Trinh, a senior currency strategist in Hong Kong at Royal Bank of Canada.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net;
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net