Mon Apr 30, 2012 8:22am EDT
* Euro falls vs dollar, hits 2-week low vs yen
* Investors wary of event risk this week
* But disappointing U.S. growth keeps dollar under pressure
* Dollar hits 2-mth low vs currency basket, yen
By Jessica Mortimer
LONDON, April 30 (Reuters) - The euro lost ground on Monday,
with investors wary of buying before weekend elections in France
and Greece and a European Central Bank meeting later in the week
that could knock sentiment towards the single currency.
The euro failed to gain traction versus the dollar despite
signs the U.S. economic recovery is losing momentum and concerns
about possible further U.S. monetary easing. This earlier
knocked the dollar to a two-month low against a currency basket.
The euro fell 0.3 percent against the dollar to
$1.3219 as investors were wary of pushing it back towards a near
one-month high of $1.32706 hit on Friday. However, it stayed
just above support at its 55-day moving average at about
$1.3206.
"The euro is a bit lower but it's within its recent ranges,
with people waiting for elections and U.S. non-farm payrolls
data on Friday," said Adam Cole, currency strategist at RBC.
The second round of the French presidential vote and
elections for a new Greek parliament are due this weekend.
Data showing Spain has slipped into recession also
highlighted concerns that harsh austerity measures in indebted
peripheral euro zone countries are hampering economic activity.
This left the euro struggling to benefit from weakness in
the dollar, which earlier touched 78.638 against a basket of
currencies, its lowest since March 1, before recovering
to trade at 78.837, up 0.15 percent on the day.
"The dollar is under pressure but the euro is by no means
out of the woods and the Spanish GDP data is a pointer," said
Peter Kinsella, currency strategist at Commerzbank, London.
"Besides, liquidity in the markets is a bit thin because of
holidays this week and this can make price movements a bit
exaggerated."
The euro also fell to a two-week low of 105.887
against the yen. Investors expect the Japanese currency to
benefit from safe-haven demand in view of Europe's debt
problems.
Markets in most of Europe will be shut on Tuesday for May
Day, while Japan celebrates Golden Week holidays, keeping
trading on foreign exchange markets a bit subdued.
U.S. DATA IN FOCUS
The dollar, which also hit a two-month low against the yen,
is likely to come under more pressure if data, including U.S.
jobs numbers, this week disappoints.
U.S. growth cooled in the first quarter partly due to
businesses cutting back on investments, reinforcing the central
bank's contention that interest rates should be kept near zero
through 2014.
The U.S. slowdown fuelled speculation that the Fed may
eventually launch another bond buying programme, or a third
round of quantitative easing.
The dollar dropped as low as 80.08 yen on trading platform
EBS, its lowest since late February, and last stood at 80.11 yen
, down 0.15 percent from late U.S. trade on Friday.
Market players said the dollar may fall further against the
yen given a drop in U.S. Treasury yields. The dollar/yen
exchange rate has a tight relationship with the spreads between
yields on U.S. Treasuries and Japanese government bonds.
Other factors that suggest the dollar may stay under
pressure against the yen include the existence of sizeable
bearish positions in the yen, a lack of interest in foreign bond
investment among Japanese investors, and the low probability of
yen-selling intervention, traders said.
But there are many risks for the euro too.
After euro zone business confidence weakened sharply in
April, the European Central Bank could scale back its economic
outlook at its policy meeting on Thursday. Rising chances of
more easing by the ECB in coming months could cap any gains in
the euro against the dollar.
For now though, the ECB has little room to cut rates given
inflation pressures are still above expectations.
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