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10 March 2011
Euro falls as sovereign woes persist
TOKYO - The euro fell on Thursday, with further pullbacks seen likely, as worries about how Europe will address its fiscal problems offset expectations of an upcoming rate hike by the European Central Bank.
The single European currency extended its losses after Moody's downgraded Spain's rating to Aa2 from Aa1 with a negative outlook.
Technical strategists said the euro's consolidation from Monday's four-month peak at $1.4036 is still in progress and a deeper retreat cannot be ruled out.
Investors are looking ahead to a European policy makers' meeting on Friday and stress tests on banks planned in the coming weeks.
"While stronger euro-zone data this week may be lending some support, we believe that uncertainty heading into Friday's Euro Area Summit is keeping the trade choppy," said Jessica Hoversen, currency strategist at MF Global in Chicago.
"If officials make no progress and Germans remain unwavering in their demands, the likelihood of a capitulation (in the euro) will be significantly higher," she added.
The euro fell 0.7 percent to $1.3818, having dropped to as low as $1.3804 earlier.
Market players expect the focus to fall on debt woes in the coming weeks, when European leaders and finance ministers will hold a series of meetings to deal with debt problems, starting with the euro zonesummit on Friday.
Few investors, however, expect a breakthrough at these meetings.
"Our view is that the financial markets will be disappointed by the announcement due to resistance by countries like Germany where public sentiment is strongly against further bailouts," said Jonathan Clark, president of FX Concepts, a currency hedge fund in New York, with assets under management of about $8.4 billion.
FX Concepts, which employs systematic investment strategies, said the cycles suggest that the euro has formed a medium-term peak, although it could see some final strength into Friday. The models also suggest that the euro could peak again in June when equities are likely to hit a top.
AUSSIE HIT BY DATA
The Australian dollar fell after data showed China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years.
The numbers stirred worries that China's growth could slow and affect countries such as Australia, which has benefited from China's expansion.
Earlier, the Australian dollar briefly tumbled after data showed Australian employment fell 10,100 in February, well below market expectations for a rise of 20,000. The data did show, however, that full-time employment rose 47,600, helping limit the impact on the Aussie.
