Euro trades at six-month low on slowdown

The euro was at a six-month low against the dollar, as reports showed European manufacturing slowed and French consumer confidence fell last month.

The 12-nation currency also slipped after the US economy lost fewer jobs than expected and the unemployment rate dropped to 4.4 percent, suggesting the slowdown in the world's largest economy may end sooner than the euro zone's.

"The data in Europe and the US [on Friday] reinforce the preeminent US position and the fact the euro will remain under pressure in the coming days and weeks," said John McCarthy, manager of foreign exchange at ING Baring (US) Capital Markets.

"The euro's weakness isn't going to change soon." Europe's currency has fallen 1.7 percent against the dollar and 2.8 percent against the yen this week. One euro bought US$0.8469, from US$0.8453 yesterday, and touched its lowest level since Nov. 27 at US$0.8433. It rose to ?100.93 from ?100.48, after falling to ?99.98, its lowest level since Dec. 19.

The euro is trading less than US$0.03 from its lifetime low of US$0.8230, reached on Oct. 26. Some traders said its continued slide in the past few weeks is a bearish signal it will revisit that level.

"I think you'll definitely see the old lows again, it's just a matter of time," said McCarthy.

Deutsche Bank AG and UBS Warburg today became the latest banks to trim their forecasts for the euro. UBS lowered its forecast to US$0.83 from US$0.85 for the end of this month, and Deutsche Bank lowered its three-month estimate to US$0.90 from US$0.95.

Declines for the currency came as European manufacturing shrank during May, and French consumer confidence fell to an eight-month low, reports on Friday showed.

The Reuters purchasing man-agers' index for eight of the 12 EU countries using the single currency dropped to a two-year low of 48.3 in May from 49.2 in April. A reading above 50 shows manufacturing is expanding; below 50 shows a contraction.

Other surveys showed manufacturing contracted in Germany, France and Italy, which together make up three-quarters of the euro economy.

French consumers grew more pessimistic for a fourth successive month as planned job cuts at Groupe Danone SA and other companies in France sparked concern unemployment will rise. An index of French expectations for the economy and spending fell more than forecast, to minus 7 in May from zero in April, the government said.

Another report this week that showed business confidence declined to the lowest level since August 1999 suggests France's economy, until now Europe's most resilient, will lose steam in coming months.

The figures follow reports last week showing the French and German economies grew less than expected in the first quarter, while inflation rose.

Traders speculate the statistics will add to pressure on the European Central Bank to trim its benchmark interest rate from 4.5 percent to spur growth. It's made one quarter-percentage point cut this year, compared to five 50 basis-point reductions by the US Federal Reserve.

"The two turbo engines of Europe are having difficulties, and that may be enough to pressure the ECB into doing something," said Karl Halligan, chief trader at the New York branch of CIC Bank, France's fifth-largest bank.

The currency has suffered over the ECB's resistance to lowering rates and the lack of clarity on how it forms monetary policy.

"It's clear that the euro-region economy is struggling and is some way from reaching a trough," said Adrian Cunningham, who helps oversee PD20 billion (US$28 billion) at Abbey National Asset Managers in Glasgow. "The path of the euro is mirroring the fact that we need a policy response, but the central bank is acting like a rabbit caught in headlights."

The euro fell 4.9 percent against the dollar and 8 percent against the yen in May, and is trading about 1 cent below where the European Central Bank first bought euros Sept. 22 last year to bolster the currency.

Yesterday it had its biggest one-day decline against the dollar since April 10 after the ECB damped speculation it would intervene to support the currency. Wim Duisenberg, the bank's president, said the euro exchange rate ``is not a target for us'' because it isn't threatening inflation.

In other trading, the dollar was little changed against the Swiss franc at SF1.7964 francs from SF1.7979, against the British pound to US$1.4205 per pound from US$1.4184, and against the Canadian dollar to C$1.5350 from C$1.5380.