Reuters: US Dollar Report: FOREX-Euro on pace for worst month vs dlr since December

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FOREX-Euro on pace for worst month vs dlr since December Apr 30th 2012, 16:17 Mon Apr 30, 2012 12:17pm EDT * Euro falls vs dollar, hits 2-week low vs yen * Investors wary of event risk this week * Disappointing U.S. growth keeps dollar under pressure * Dollar hits more than 2-month low vs yen By Gertrude Chavez-Dreyfuss NEW YORK, April 30 (Reuters) - The euro slid against the dollar on Monday and was on track for its worst month since December, pressured by nagging euro zone stresses as German retail sales were softer than expected and Spain slipped back into recession. Investors were also wary of buying euros before weekend elections in France and Greece and a European Central Bank meeting this week that could further knock sentiment on the euro zone common currency. The yen was one of the big gainers of the day, hitting a more than two-month high against the dollar and a two-week peak versus the euro, as investors sought the Japanese currency's safety on global economic worries. "All the news out of Europe is getting worse, although we're still in a range," said Win Thin, senior currency strategist, at Brown Brothers Harriman in New York. "I think the European news and the generally weak U.S. data are sort of feeding into this risk-aversion mode." The euro failed to gain traction versus the dollar despite signs the U.S. economic recovery was losing momentum and concerns about possible further U.S. monetary easing. Data on U.S. spending for March and business activity for the U.S. Midwest released on Monday reinforced that view. A report showed U.S. household spending rose 0.3 percent, below the consensus forecast of a 0.4 percent increase. Taking into account inflation, spending rose 0.1 percent. Adding to the weak U.S. view was a drop in Midwest business activity. The Institute for Supply Management-Chicago's business index fell to 56.2 in April, below market forecasts of 61.0. The reading was 62.2 in March.. In midday New York trading, the euro fell 0.2 percent to $1.3228 against the dollar as investors were wary of pushing it back toward a near 1-month high of $1.3270 on Friday. However, it stayed just above support at its 55-day moving average at about $1.3205. On the month, the euro was down 0.9 percent, its worst performance since December last year. Markets are on tenterhooks, awaiting the second round of the French presidential vote and elections for a new Greek parliament this weekend. Data showing Spain slipping into recession also highlighted concerns that harsh austerity measures in deeply indebted smaller euro zone economies were hampering growth. This left the euro struggling to benefit from weakness in the dollar, which earlier touched 78.638 against a basket of currencies. The dollar fell to its lowest since March 1 before recovering to trade at 78.835, up 0.2 percent on the day. The euro also dropped to a two-week low against the yen at 105.45 yen and last traded at 105.56, down 0.8 percent. Investors expected 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 for much of the week, keeping trading on foreign exchange markets subdued. The ECB policy meeting on Thursday could also weigh on the euro. After euro zone business confidence weakened sharply in April, the ECB could scale back its economic outlook at the meeting. Rising chances of more ECB easing in coming months could further pressure the euro and force markets to sell into any rally versus the dollar. The dollar also hit a more than 2-month low against the yen at 79.710 yen in the wake of a weak Chicago PMI report, and was last at 79.800, down 0.6 percent. For the month, the dollar was down 3.4 percent, its weakest monthly performance since July 2011. Greg Michalowski, chief currency analyst at online FX broker FXDD, said the next key target for dollar/yen to the downside comes in at the 100-day moving average at 79.54 level. He added that the currency pair has not closed below this level since Feb. 8. 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. Dollar/yen three-month risk reversals are currently skewed to the upside or slightly positioned for a further rise in the greenback. But Aditya Bagaria, FX options strategist in London, expects the pair's gains to be limited. Based on the Bank of Japan's statement and action at last week's policy meeting, the current easing cycle could be ending, he wrote in a note. The BoJ announced more easing measures last week, but the statement, Bagaria said, suggested the bank believed the measures may be sufficient for now to help achieve its medium-term inflation target. At the same time, the BoJ revised higher both growth and inflation for 2012 and 2013 compared to February forecasts. Link this Share this Digg this Email Reprints

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