Euro Declines as Cooling Inflation Gives ECB Scope for Easing

 

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The euro fell versus the dollar, extending its first monthly drop since July, amid Italian political wrangling about forming a government and as cooling inflation opens the door for central bank stimulus.

The 17-nation currency weakened against most of its major peers as European Central Bank President Mario Draghi signaled at an event in Munich late yesterday that the bank has no intention of tightening monetary policy anytime soon. The U.S. economy barely expanded in the fourth quarter, erasing a previously estimated contraction. The rand fell 1.7 percent against the greenback as South Africa posted a record trade gap in January.

“You have a lot of uncertainty in Europe right now, concerns regarding political gridlock in Italy, and also concerns about growth in the euro zone,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “Those definitely have been limiting any gains in euro, which is contrary to what we saw earlier this year.”

The euro weakened 0.2 percent to $1.3110 at 9:22 a.m. New York time and is down 3.3 percent this month. It was unchanged at 121.19 yen, set for a 2.8 percent drop in February. The dollar rose 0.1 percent to 92.33 yen.

Prices Gauge

Inflation eased to 2 percent in January from 2.2 percent in December, the European Union’s statistics office said. Seven euro-area economies are expected to shrink this year, with the Netherlands joining Italy, Spain, Portugal, Greece, Cyprus and Slovenia, the Brussels-based European Commission said Feb. 22.

The ECB will probably maintain its benchmark interest rate at 0.75 percent next week, according to a Bloomberg News survey of economists. The ECB will update its December economic forecasts after the euro area’s recession deepened in the fourth quarter. The European Commission sees inflation at 1.8 percent this year and 1.5 percent in 2014.

The euro has fallen 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen gained 0.2 percent and the dollar strengthened 1.8 percent.

Economic Data

U.S. gross domestic product grew at a 0.1 percent annual rate, up from a previously estimated 0.1 percent drop, revised figures from the Commerce Department showed. The median forecast of 83 economists surveyed by Bloomberg called for a 0.5 percent gain. Federal military outlays declined at a 22 percent annual pace, the biggest decrease since 1972.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, traded at 81.579 after rising to 81.948 on Feb. 26, the highest since Aug. 22.

New Zealand’s dollar strengthened for a second day against the greenback after the National Bank of New Zealand said its business confidence index rose to 39.4 this month from 22.7 when the previous survey was taken in December.

The currency advanced 0.3 percent to 82.99 U.S. cents after advancing 0.3 percent yesterday.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net