The euro fell to the lowest level in five weeks against the dollar after European Central Bank council member Axel Weber said the region’s economy may need help from the central bank through the end of the year.

The shared currency dropped to the least since July 1 versus the Swiss franc after Weber told Bloomberg Television the ECB should assist banks to prevent year-end liquidity tensions. The yen headed for a weekly gain versus 15 of its 16 major counterparts on signs the global economic recovery is slowing, boosting demand for the currency as a refuge.

“They’re interpreting the comments as suggesting there is more ambiguity about how the ECB will respond down the road,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “They’re nervous that the pragmatism may disappear down the road and that is generating that move in the euro.”

The euro fell 0.9 percent to $1.2705 as of 8:58 a.m. in New York, after dropping to $1.2685, the weakest since July 13. Japan’s currency was at 108.73 per euro from 109.49 in New York yesterday, after reaching 108.31, the strongest since July 1. The euro traded at 1.3174 francs from 1.3233 francs yesterday, after touching 1.3140 francs. The yen rose 0.3 percent to 85.60 per dollar.

Stocks Drop

The common currency accelerated declines as the Stoxx Europe 600 Index fell 0.9 percent and futures on the Standard & Poor’s 500 Index dropped 0.4 percent. Reports next week may show U.S. home sales fell, Japanese export growth slowed and German business sentiment weakened.

“Most of these discussions about the continuation of the exit I think will be focused on the first quarter,” Weber, who heads Germany’s Bundesbank, said in an interview with Bloomberg Television in Frankfurt yesterday. “It’s clear that we need to re-embark on a normalization procedure.”

Revisions to U.S. economic growth next week will probably indicate the pace of the expansion slowed even more in the second quarter, to a 1.4 percent annual rate from the 2.4 percent in a preliminary report on July 30, according to a Bloomberg survey.

‘Dovish Comments’

“Dovish comments from Bundesbank President Weber were the catalyst for the latest bout of euro selling,” analysts from RBC Capital Markets led by Adam Cole in London wrote in a note to clients today. “The comments suggest the ECB will be generous in re-injecting liquidity when a huge volume of previous repo arrangements expire next month.”

Purchases of existing U.S. homes fell 13.9 percent in July, after declining 5.1 percent in May, economists said before the Aug. 24 report. Japan’s export growth slowed to 21.8 percent in July from 27.7 percent in June, and the Ifo institute’s German business climate index slid to 105.5 in August from 106.2 the previous month, separate surveys showed before the Aug. 25 data.

“The thing that is helping to drive yen strength is this ongoing risk aversion,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington.

The yen has gained 14 percent this year, the best performance among 10 developed-world currencies, Bloomberg Correlation-Weighted Currency Indexes show. The Swiss franc rose 4 percent. The two currencies typically strengthen in times of financial and economic turmoil as investors repatriate funds from the nation’s trade surpluses.

Japan Plan

Gains in the yen were tempered due to speculation the Japanese government will take steps to counter this week’s 1 percent appreciation versus the dollar.

The probability the Bank of Japan will take steps to affect currency markets is at a six-year high of 51 percent, according to a Morgan Stanley model that uses factors such as net positions in Japan’s currency. Japan hasn’t intervened to weaken its currency since 2004.

“The yen is a risk-aversion trade,” said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, which has about $228 billion of assets. “The likelihood of any intervention by the authorities remains low, but if they did respond, then the impact would be very significant.”

The yen’s climb to a 15-year high of 84.73 against the dollar on Aug. 11 has stoked concern that exporters’ earnings could weaken and deflation might deepen. Finance Minister Yoshihiko Noda said today he will meet with Prime Minister Naoto Kan next week to discuss the economy and currency.

France’s Budget

The euro was poised for a second weekly loss versus the franc as French President Nicholas Sarkozy readies France’s 2011 budget along with a bill to increase the retirement age.

“Data have been consistently weak,” said David Deddouche, a foreign-exchange strategist at Societe Generale SA in Paris. “The trend is risk off and I’m expecting more franc strength.”

Australia’s dollar fell to a four-week low versus the yen as polls signaled tomorrow’s election may result in a hung parliament.

“Two factors have made the election more interesting –the threat of a hung parliament and significant differences across the major and minority parties on a mining sector tax,” David Forrester, a currency economist in Singapore at Barclays Capital, wrote in a note to clients. “We favor positioning for a weaker Aussie versus other commodity currencies.”

The Australian currency fell to 76.10 yen, after sliding to 75.48 yen, the lowest since July 20.

By Catarina Saraiva and Bo Nielsen

Tags: businesses, economic growth, economists, economy recovery, european central bank, financial, global economic, home sales, us economy

This entry was posted on Friday, August 20th, 2010 at 11:22 am and is filed under Economic Turmoil, Global Economy, Global Financial, Market Finance, US Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.