Euro Remains Lower Before ECB Meets to Discuss Crisis Measures

By Monami Yui and Mariko Ishikawa

     Aug. 2 (Bloomberg) -- The euro failed to rally from a decline yesterday before European Central Bank policy makers meet to discuss ways to tackle the region’s debt crisis today.

     The 17-nation currency remained lower versus the yen before Spain sells bonds today for the first time since ECB President Mario Draghi pledged to do whatever it takes to defend the euro,
suggesting the central bank may intervene in bond markets. Demand for the dollar was supported after the Federal Reserve yesterday refrained from monetary easing.

     “I think a lot of people are expecting the ECB to announce some sort of ‘shock-and-awe policy’ today,” said Peter Dragicevich, a Sydney-based foreign-exchange economist at Commonwealth Bank of Australia. “If the ECB were to disappoint, we expect the euro to fall.”

     The euro bought $1.2237 as of 8:20 a.m. in Tokyo after falling 0.6 percent to $1.2225 in New York. The shared currency traded at 95.96 yen from 95.89 yesterday, when it dropped 0.2 percent. The dollar was little changed at 78.40 yen, following a 0.4 percent gain yesterday.

     Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.

                          ECB Meeting

     ECB officials meeting in Frankfurt will keep the benchmark interest rate at a record low 0.75 percent, according to 51 of 55 economists in a Bloomberg News survey. Four predict a cut to 0.5 percent. The deposit rate will be left at zero, another poll shows. Spain is set to sell debt today maturing in 2014, 2016 and 2022 today.

     The euro has dropped 4.5 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, the worst performance among the 10 currencies tracked by the gauge. The yen has gained 0.2 percent and the dollar strengthened 3.4 percent over the same period.

     The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said yesterday in a statement at the end of a two-day meeting in Washington. Investors had speculated it might signal a third round of asset purchases under quantitative easing.

     The pace of hiring in the U.S. in July probably failed to reduce the nation’s 8.2 percent unemployment rate, economists said before a Labor Department report due tomorrow. The data probably will show employers added 100,000 jobs last month, according to the median forecast in a separate survey of economists. Employers added an average of 226,000 a month from January through March.