By James Ramage
The euro fell to an eight-month low against the dollar on
Tuesday after data highlighting the diverging economic performance
of the U.S. and Europe provided investors with an excuse to sell
the common currency.
The euro dropped to its lowest level against the dollar since
Nov. 22, 2013, sliding 0.4% to $1.3468. The common currency fell
0.4% against the yen on the day, to 136.62 yen, its weakest since
Feb. 5. The euro's losses against both currencies immediately
followed the release of data showing U.S. inflation climbed in
June.
"The euro moved a lot after the data, but not because of the
data," said Lennon Sweeting, a dealer at USForex in San Francisco.
"The market has been pretty bearish on the euro. This provided the
selling opportunity."
Investors have been lining up wagers against the euro since late
May, according to the Commodity Futures Trading Commission. Many of
those euro bears have been waiting for the European Central Bank to
take steps to fight low inflation, something the central bank has
said it would do and a move that would weaken the euro. Some
investors also have been waiting for the Federal Reserve to
determine that the economy had recovered enough or that inflation
was high enough for the central bank to raise its key interest rate
from rock-bottom levels, which would boost the dollar.
Those expectations got a boost Tuesday, after data from last
month showed U.S. inflation is on an upward trend. The U.S.
consumer-price index increased 0.3% in June from May, and was 2.1%
higher than a year ago, the Labor Department reported Tuesday.
Like the ECB, the Fed has set an annual inflation goal of 2%,
although the U.S. central bank prefers to use the Commerce
Department's personal consumption expenditures price index, which
was up 1.8% in May from a year earlier. However, consumer prices in
the euro zone have risen just 0.5% annually.
With stronger U.S. data, the ECB's expected moves, and
geopolitical concerns, "there are plenty of reasons to be bearish
on the euro," said Aroop Chatterjee, chief FX quantitative
strategist at Barclays.
In addition, concerns about Russia stand to weigh on the euro.
The European Union is expected to increase sanctions on Russia in
response to the latter's involvement with the crisis in eastern
Ukraine. Many euro-zone economies count Russia as a major
destination for their exports, as well as a vital supplier of
natural gas.
"The E.U. can't impose many sanctions without Europe being
significantly affected," said Steven Englander, head of G-10 FX
strategy at Citi. "As we grow closer to the E.U. taking action, the
damage to the European economy is becoming more material."
Write to James Ramage at james.ramage@wsj.com