Euro Retreats to Five-Month Low versus Yen (Bloomberg) (21-01-2008)

Jan. 21 (Bloomberg) -- The euro lost ground declining to a five-month low against the yen following comments by a European Central Bank council member, who said that economic growth may slow more than policy makers had expected.

The currency also fell against the dollar as he estimates that the 15-nation region's expansion will be closer to 1.5 percent than 2.5 percent in the coming year. Reports this week will show German business confidence fell to the lowest in two years and European service and manufacturing industries slowed, separate surveys of economists showed.

The euro, which rose 3.7 percent in 2007, declined to 154.37 yen, the weakest since Aug. 22, as of 7:45 a.m. in London, from 156.20 yen in New York on Jan. 18. It also slipped to $1.4542 versus the dollar from $1.4621 late last week. It touched $1.4524, the lowest since Dec. 27. U.S. financial markets are closed today for the Martin Luther King Day holiday.

The euro weakened to 1.6054 versus the Swiss franc, the lowest since March. Against the British pound, it fell to 74.55 pence from 74.77 pence on Jan. 18. European stock futures fell, raising the prospect of a 20 percent decline that indicates a bear market. Europe's Stoxx 600 is down 18 percent from a 6 1/2- year high on June 1.

The ECB's scope to avoid a slowdown by lowering interest rates from a six-year high will be limited by wage increases that are fueling inflation, said Geoffrey Yu, a Zurich-based currency strategist at UBS AG, the world's largest currency trader after Deutsche Bank AG. Germany's GDL union, representing 30,000 rail workers, won a pay raise of 11 percent last week, ignoring pleas by the ECB to keep increases to a minimum.

The yen rose to 106.15 per dollar from 106.87 in New York on Jan. 18. It reached 105.92 per dollar on Jan. 16, the strongest since May 2005.

The Bank of Japan will leave the nation's benchmark overnight lending rate at 0.5 percent tomorrow, according to all 38 economists surveyed by Bloomberg News.

One-month implied volatility for the yen rose to 14.45 percent today, from 14 percent on Jan. 18. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options.

Source: Bloomberg