Euro declines with cut in rates expected

The euro declined on speculation that the European Central Bank will cut interest rates to a record low today after a report showed Germany’s services industries unexpectedly shrank last month.

Metals fell and European stocks pared their drop.

The euro depreciated 0.7% to $1.2524 in New York yesterday. Copper decreased 0.9% and Brent crude dropped 0.8%. The Stoxx Europe 600 Index was little changed after falling 0.5%. Standard & Poor’s 500 Index futures were little changed. Italy’s 10-year bond snapped four days of gains.

A gauge of German services fell to 49.9 in June, less than the earlier reading of 50.3, according to London-based Markit Economics, with a figure below 50 indicating contraction.

Other reports showed euro-area services and manufacturing output contracted for a fifth month and China’s services expanded at the slowest pace in 10 months. ECB president Mario Draghi will probably cut the benchmark rate by a quarter-percentage point to 0.75%, according to the median forecast of economists in a Bloomberg survey.

“Slow growth dynamics and uncertainty are pressuring the euro,” said Gavin Friend, a London-based markets strategist at National Australia Bank Ltd. “The ECB will probably cut tomorrow. Draghi has hinted that an easing of policy is on the way. The euro will probably lag behind, with other currencies rallying more.”

The International Monetary Fund cut its US growth estimate yesterday and said the Federal Reserve may need to further ease monetary policy.

The euro fell 0.8% against the yen, dropping versus 13 of its 16 major peers. Sweden’s krona climbed to its strongest level against the euro since December 2000 after Sweden’s central bank left its main interest rate unchanged.

— Bloomberg