The euro fell for the first time in six weeks versus the US dollar as reports showed the region’s economy struggling amid the debt crisis.
The yen advanced against all major currencies as weaker-than-forecast data from China and rising tensions between the two nations spurred demand for haven assets. Riskier currencies declined versus the US dollar as a report showed Chinese manufacturing might contract for an 11th month. The 17-nation euro declined versus most of its major counterparts before Spain’s government addresses budget issues next week.
“Even though the moves by the European Central Bank (ECB) can take away tail risk, you still have a really dismal economic situation, where at best, its stagnant, and at worst, deepening recession,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc, a currency brokerage.
Esiner said he expected the euro to end the year between US$1.25 and US$1.28.
The euro dropped 1.1 percent this week to US$1.2980 in New York, its largest decline since July 6. The shared currency weakened 1.4 percent to ￥101.46, its first weekly loss since Aug. 10. The yen strengthened 0.3 percent to ￥78.17 per US dollar.
The common currency’s 14-day relative strength index versus the dollar fell to 66 after spending seven days above 70. A reading above 70 indicates an asset may have rallied too quickly and is be due for a correction.
Futures traders decreased bets the euro will decline against the US dollar for a third week, according to Commodity Futures Trading Commission data. Net-shorts for the euro-dollar fell to 73,482 in the week that ended on Tuesday.
The euro declined as Spanish Prime Minister Mariano Rajoy considered whether to request economic assistance for the indebted nation after the ECB pledged to buy bonds.
“There is caution about how much further the risk rally can go without constant stimulus injections to keep sentiment high,” Stephen Gallo, a foreign-exchange strategist at Credit Agricole SA in London, said on Thursday. “The foreign-exchange market is also sensing some tap dancing in Spain in terms of the official request for aid.”
The pound advanced for a seventh week against the US dollar on speculation the UK economy was poised to recover from recession, while the US Federal Reserve expands monetary easing.
Sterling rose to the highest level in more than a year against the greenback and has advanced 0.7 percent since the Fed said on Sept. 13 it would buy US$40 billion of mortgage bonds a month to cap borrowing costs.
The pound also strengthened against the euro for the first time in six weeks as investors sought UK assets as a haven amid speculation Spain would delay seeking aid that could help sooth turmoil in euro-region sovereign debt markets. Ten-year gilts advanced, snapping a two-week drop.