The euro declined against the yen for a second day after German and French leaders rejected calls for a joint-borrowing plan to stem the region’s debt crisis and amid signs growth is slowing.
The 17-nation currency also weakened for the first time in five days versus the Swiss franc before data today forecast to show European inflation slowed in July. The dollar slid against the yen before reports this week that may signal U.S. price pressures are easing. New Zealand’s dollar fell versus most of its major counterparts after Auckland-based Fonterra Cooperative Group Ltd. said whole-milk powder prices fell to the lowest in more than a year.
“European leaders haven’t addressed the underlying problem of deficits in the individual countries, and the exposure for banks and the crisis is set to bubble on,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and rates risk management firm. “Everything that’s going on in Europe would make it the sickest one at the moment. The euro is possibly at the top end of its range.”
The euro weakened to 110.34 yen as of 12:11 p.m. in Tokyo after slipping 0.3 percent to 110.65 in New York yesterday. The shared currency dropped to $1.4392 from $1.4407 yesterday. The dollar slipped to 76.67 yen, compared with 76.80 yen yesterday.
German Chancellor Angela Merkel and French President Nicolas Sarkozy rebuffed the proposed euro-area bond plan, as well as an expansion of the region’s 440 billion-euro ($632 billion) rescue fund. A plan to resubmit a proposal for a financial-transaction tax, which the European Union rejected in 2010, sent stocks lower in the U.S. and Asia.
Tax Plan
The MSCI Asia Pacific Index of regional shares was little changed after earlier declining 0.5 percent. The Standard & Poor’s 500 Index lost 1 percent yesterday.
The rejection of both euro bonds and an expansion of the bailout fund coupled with discussion of a transaction tax “could weigh on European equity and bond markets,” BNP Paribas SA strategists including Ray Attrill in New York wrote in a note to clients. The tax plan “could fall flat, but the uncertainty factor will likely linger and weigh on the euro.”
European consumer prices fell 0.6 percent in July after flat readings for May and June, according to the median estimate in a Bloomberg News survey of economists before data from the EU’s statistics office today.
Annual inflation in the region slowed to 2.5 percent from June’s 2.7 percent reading and in line with a July 29 initial estimate, the survey predicted. That would still exceed the European Central Bank’s 2 percent ceiling for an eighth month.
U.S. Prices
The dollar slipped for a second day versus the yen before Labor Department data that economists said will show a 0.1 percent gain in the producer-price index for July, following last month’s 0.4 percent decline, according to a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy costs, probably increased 0.2 percent after a 0.3 percent advance in June.
A report tomorrow will show consumer prices excluding food and fuel costs climbed 0.2 percent, the smallest gain in three months, according to a separate survey.
“We have no sign of the U.S. coming out of this slow growth period,” said Kurt Magnus, executive director of currency sales at Nomura Holdings Inc. in Sydney. “That’s bearish for theU.S. dollar.”
The dollar has slumped 6.3 percent so far this year, the worst performer among the 10 currencies tracked by Bloomberg Correlation-Weighted Indexes.
Kiwi Declines
The New Zealand currency weakened after Fonterra, the world’s largest dairy exporter, said milk powder fell at auction to its lowest level since Aug. 3 last year. The so-called kiwi also declined along with the Australian dollar as concern the global economic recovery is losing momentum curbed demand for higher-yielding assets.
“There are all sorts of hurdles around in global markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “That will hurt risk appetite and that would hurt Aussie and kiwi in particular.”
New Zealand’s dollar fell to 83.51 U.S. cents from 83.61 cents and slipped to 64.02 yen from 64.21 yen. The so-called Aussie decreased to $1.0467 from $1.0486.
To contact the reporters on this story: Candice Zachariahs in Sydney atczachariahs2@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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