Reuters: US Dollar Report: FOREX-Euro stumbles on debt worries, Ifo boost fizzles

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FOREX-Euro stumbles on debt worries, Ifo boost fizzles Mar 26th 2012, 11:59 Mon Mar 26, 2012 7:59am EDT * German IFO survey gives fleeting support to euro * Euro faces tough resistance around $1.3300 * Worries grow about Spain after election setback * Dollar gains broadly, up 0.8 pct vs yen By Jessica Mortimer LONDON, March 26 (Reuters) - The euro fell against the dollar on Monday after a better-than-forecast German business sentiment survey failed to alleviate concerns about euro zone growth, while investors fretted about Italian debt auctions and Spain's budget. The dollar also moved broadly higher, rising against the Japanese yen and the Swiss franc as signs of improvement in the world's largest economy lifted U.S. bond yields and lent support to the U.S. currency. In Europe, the German Ifo think tank's business climate index rose to 109.8, beating expectations of a steady reading of 109.6 and suggesting Europe's large economy may be holding up despite the euro zone crisis. However, the euro rose only briefly after the data, with analysts and traders mindful that high oil prices could pose a risk to growth, especially as purchasing managers' indices last week showed German manufacturing activity shrinking. "Ifo data at 0.2 away from consensus is not a strong number. The PMIs are more forward-looking and retail sales across Europe have been awful," said Maurice Pomery, managing director at consultants Strategic Alpha. "The growth story is worrying. Spain, Italy and Portugal are struggling to get growth and even Germany and France are slowing." Pomery said he would be a seller of euros on any rally. The euro was down 0.15 percent at $1.3253, having risen briefly to around $1.3262 after the Ifo survey was released. However, it was off a session low around $1.3192, when traders said Middle-Eastern investors were big sellers, with reported bids at $1.3150 expected to prop it up for now. Even so, after the euro failed to breach resistance last week at $1.3302, the 61.8 percent retracement of its late February to mid-March fall, analysts said the bias was for more losses. Traders also cited talk of an options barrier at $1.33. The euro faced a slew of risk events this week, including bond auctions in Italy, a meeting of euro zone finance ministers and Spain's budget on Friday. Italy is seeking to raise up to 7.5 billion euros amid renewed pressure on peripheral euro zone debt. Worries are also growing about Spain after a government setback in regional elections, making Prime Minister Mariano Rajoy's task of pushing through harsh spending cuts more difficult. "The German Ifo data did give the euro a bit of a leg higher, but it also highlighted the dichotomy between the German economy and the strugglers in the euro zone periphery," said Steve Barrow, G10 currency strategist at Standard Bank. "We also have tension creeping up in the euro zone peripheral debt market and that should keep the euro's bias more towards $1.30 than towards $1.35." DOLLAR FIRMER The dollar advanced against the Japanese currency, gaining 0.8 percent to 83.008 yen and inching closer to an 11-month high of 84.19 struck on March 15. Traders said they would prefer to buy the dollar and sell the yen, with repatriation inflows ahead of the Japanese fiscal year-end on March 31 unlikely to change the bearish sentiment towards the Japanese currency over the medium term. "We are expecting the dollar/yen pair to trade in a 80-85 yen range with a risk of an upside break. A lot will depend on whether the economies outside the U.S. also pick up," said Paul Robson, currency strategist at RBS Global Banking. "As long as the U.S. economy shows signs of outperforming the others, the dollar would be supported." The dollar index, a gauge of its performance against a basket of major currencies, rose 0.1 percent to 79.459, having recovered from a two-week low last week. The yield on U.S. 10-year notes was up around 4.5 basis points to 2.28 percent on Monday. But any signs of dovishness from Federal Reserve Chairman Ben Bernanke, who is scheduled to speak at 1200 GMT, may weigh on the dollar. The growth-linked Australian dollar was up 0.1 percent at $1.0471, steadying after a steep fall last week. Link this Share this Digg this Email Reprints

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