Euro Trades Near Five-Week Low Before Industrial Output Report

Jan. 14 (Bloomberg) -- The euro traded near a five-week low versus the dollar before a report that economists say will show Europe’s industrial output fell the most since 1993, adding to expectations the European Central Bank will cut interest rates.

The 16-nation currency was also near a six-week low versus the yen on speculation lower borrowing costs will reduce the appeal of euro-denominated assets to overseas investors. The dollar traded near the weakest level in a month versus the yen before reports on retail sales and manufacturing that may show the U.S. recession is deepening.

“There are a lot of orders to sell the euro,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed bank. “Interest-rate cuts are likely and that is weighing on the euro. There’s not much good economic news coming out of Europe.”

The euro traded at $1.3184 as of 8:44 a.m. in Tokyo from $1.3182 late yesterday in New York, when it touched $1.3141, the weakest level since Dec. 11. The euro was at 117.82 yen from 117.81 yen. It fell to 117.13 yen yesterday, the lowest since Dec. 5. The dollar was little changed at 89.35 yen. It slid yesterday to 88.79 yen, the weakest since Dec. 19. The euro may decline to $1.3100 today, Shimizu said.

European industrial production probably declined 6.1 percent in November from a year earlier, according to the median forecast of economists surveyed by Bloomberg News. The European Union statistics office is scheduled to release the data today.

ECB Rate

A Credit Suisse Group AG gauge of probability based on overnight index swaps indicated the ECB will lower its 2.5 percent main rate by at least 50 basis points tomorrow, with 7 percent odds that the cut will be deeper. The median forecast of 59 economists surveyed by Bloomberg News is for a 0.5 percentage-point reduction.

The ECB has reduced interest rates by 1.5 percentage points since the beginning of last year, while the Fed cut its target 4 percentage points. The Bank of England lowered its main rate 4 full percentage points in 12 months, pushing it to 1.5 percent.

Europe’s currency lost 7 percent against the yen, 5.7 percent against the dollar and 5.1 percent against the pound this year as reports showed services and manufacturing shrank in December by the most in at least a decade and inflation fell below the ECB’s ceiling of 2 percent for the first time since August 2007.

Dollar Index

The Dollar Index traded on ICE futures touched 84.446 yesterday, the strongest level since Dec. 11, after the Commerce Department said the U.S. trade deficit shrank to $40.4 billion in November, the smallest since November 2003, from a revised $56.7 billion in October.

The index has gained 3.6 percent this year, after losing 6 percent in December, when the Federal Reserve lowered its benchmark interest rate to a range between zero and 0.25 percent, a record low.

“The Dollar Index has some resistance in the 84.50 area,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “My view is that the Dollar Index could continue to rally somewhere around 87 or 88, to the high that we set” in October.