ECONOMY

Euro falls toward six-month low as Yen gains after Paris attacks

euro-falls-toward-six-month-low-as-yen-gains-after-paris-attacks

The euro dropped toward a six-month low versus the dollar, erasing its first weekly gain in a month, after the terror attacks in Paris raised investor concerns about the outlook for Europe.

The slide in the single currency resumes a decline that has seen it lose 5.5 percent since Oct. 16, as European Central Bank President Mario Draghi stoked market expectations for additional easing next month. The yen advanced against all but one of its major peers Monday, joining rallies in U.S. Treasuries and gold, as traders turned to traditional havens after French warplanes bombed targets in Syria. The Swedish krona, Norwegian krone and Danish krone slumped.

“The events in Paris on Friday would have diverted funds away from risky assets — including, in this case, the euro,” said Nizam Idris, head of currencies and fixed-income strategy at Macquarie Bank Ltd. in Singapore. “The euro has been more or less a safe-haven currency lately given the very low interest rate, but when events are centered around a country, that currency will weaken regardless of interest rates.”

The euro declined 0.4 percent to $1.0730 as of 6:45 a.m. in London. It sank as much as 0.8 percent to $1.0687 earlier, near the $1.0675 reached on Nov. 10 that was the weakest level since April 23.

Europe’s shared currency slumped 0.6 percent to 131.36 yen, after touching 130.65, a level unseen since April 29. The yen rose 0.2 percent to 122.43 per dollar.

The krona fell 0.4 percent to 8.7017 per dollar. The Norwegian krone slid 0.3 percent to 8.7038 to the greenback, while Denmark’s currency declined 0.4 percent to 6.9543 per dollar.

The euro is trading below the median year-end estimate of $1.09 forecast by analysts.

Options traders had also pared bets for a weaker currency in recent weeks. The relative cost of protecting against a euro decline versus the U.S. currency has fallen to 49.75 basis points, from a three-month high of 1.14 percentage points on Oct. 23, according to data on one-month risk reversals. The premium on contracts to sell the single currency over those to buy rose by 1.25 basis points Monday.

European Central Bank President Mario Draghi signaled on Oct. 22 that another round of stimulus may be in the pipeline for December. Policy options include extending stimulus beyond its current end date of September 2016, ramping up monthly purchases from 60 billion euros ($64 billion) and cutting the deposit rate.

‘Clearer focus’

“These events help put a substantial easing by the ECB next month into clearer focus,” Ned Rumpeltin, Cristian Maggio and Prashant Newnaha, analysts at TD Securities Inc, wrote in a research note Monday. “We expect markets to begin pricing in the probability of a larger rate cut.”

The euro is set to weaken to $1.05 at the end of the year, said Robert Rennie, head of financial markets strategy at Westpac Banking Corp. in Sydney.

“It is too early to guess what sort of impact the horrific attacks in Paris might have on consumer sentiment coming into an important period for retailers,” Rennie said. “However, at the margin, it argues for further weakness in the euro into the end of the year.”

[Bloomberg]