Euro in six-week low against yen as recession fears rise

The euro fell to a six-week low against the yen as the inflation rate in the eurozone matched the lowest since Feb 2011 in June, adding to concern that the region is headed for a recession.

The 17-nation currency dropped below $1.22 for a third day as German chancellor Angela Merkel said she had not softened her stance on measures to stem the sovereign debt crisis.

It stayed lower as Germany’s top court said it would take over eight weeks to decide whether to suspend the eurozone’s permanent bailout fund.

“Euro negativity is still pretty elevated,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London.

“There’s still a great deal of uncertainty about how the European problems are going to be worked through.”

The euro declined 0.6% to 96.37 yen at one stage in New York, after falling to 96.17 yen, the lowest since Jun 1. The single currency depreciated 0.3% to $1.2197 and touched $1.2176. It slid to $1.2163 on Jul 13, the weakest since Jun 2010. The yen appreciated 0.4% to 78.87 per dollar.

The euro, created in 1999, is 0.9% from its lifetime average exchange rate, currently at $1.2087. It has fallen 4.2% in the past three months, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes.

The yen advanced 6.2%, and the dollar gained 4.2%.

The yen extended gains versus the dollar after US retail sales unexpectedly fell for a third straight month in June. The 0.5% drop followed a 0.2% fall in May.

The decline was worse than the most-pessimistic forecast in a Bloomberg News survey in which the median projection called for a 0.2% rise. Purchases last fell for three or more months in July through Dec 2008.

Eurozone inflation was 2.4% in June, the same as May, according to the EU’s statistics office in Luxembourg. A gauge of investor confidence in Germany, the region’s biggest economy, slid to minus 20 this month from minus 16.9 in June, the median estimate of 38 economist estimates in a Bloomberg survey showed.

Ms Merkel said a banking union involving a financial overseer for the eurozone would have to include joint oversight on a “new level”. German legislators are scheduled to debate aid to recapitalise Spanish banks this week.

Germany’s federal constitutional court will issue a ruling on bids to halt Germany’s participation in the European Stability Mechanism and the fiscal treaty on Sept 12. It held a hearing on the measures on Jul 10.