Reuters: US Dollar Report: FOREX-Euro posts worst month vs dollar since December

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FOREX-Euro posts worst month vs dollar since December Apr 30th 2012, 20:51 Mon Apr 30, 2012 4:51pm EDT * Euro falls vs dollar, hits 2-week low vs yen * Euro/dollar implied vol nears 4-year low * Disappointing U.S. growth keeps dollar under pressure * Dollar hits more than 2-month low vs yen By Julie Haviv NEW YORK, April 30 (Reuters) - The euro dropped against the dollar o n M onday and notched its worst monthly performance since December, weighed down by news of Spain slipping back into recession and signs of weaker economic momentum in the United States. 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 down sentiment. "Risk aversion was today's theme, with the economic outlook for the euro zone looking bleak," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "In the U.S., overall deterioration in economic data has left the door squarely open for the Fed to add more stimulus." Data on U.S. spending and business activity in the Midwest reinforced that view that the U.S. economic recovery is losing momentum. Recent weak U.S. data, in particular Friday's weaker-than-expected first-quarter GDP report, has raised the prospect of another round of Federal Reserve bond buying, or quantitative easing. Another round of QE would be negative for the dollar as it is tantamount to printing money. In late afternoon New York trading, the euro was down 0.1 percent to $1.3242 against the dollar, receding from a near 1-month high of $1.3270 reached on Fr iday. On the month, the euro was down 0.8 percent, its worst performance since December. The euro, however, has not closed below $1.30 or above $1.35 since Jan. 20. Implied euro/dollar volatility, a gauge of options market price expectations in either direction, reflect the currency pair's narrow trading range, reaching 9.4 percent on Monday, its lowest since August 2008. "Volatilities across a lot of (currency) pairs are at 4-year lows," said John Hopkinson, head of FX quantitative and options research at BofA Merrill Lynch. "It is just a reflection of the fact that the dollar has been rangebound for a few months now, in large part in my view because the central banks are keeping a lid on any tail risks." Markets are on tenterhooks, awaiting the second round of the French presidential vote and elections for a new Greek parliament this weekend. Meanwhile, data showing Spain slipped into recession highlighted concerns that harsh austerity measures are hindering growth. The yen was one of the big gainers of the day as investors sought the Japanese currency's safety on global economic fears. The euro dropped to a two-week low against the yen at 105.43 and last traded at 105.64, down 0.7 percent. The dollar also hit a more than two-month low against the yen at 79.710 yen. For the month, the dollar was down 3.6 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 at the 100-day moving average of 79.54. He added that the currency pair has not closed below this level since Feb. 8. The Australian dollar was one of the worst-performing G10 currencies, falling 0.5 percent to US$1.0418 as market participants await Tuesday's Reserve Bank of Australia meeting. With the RBA widely expected to lower rates, the focus will be on the size of the cut, with some expecting 25 basis points and others expecting 50 basis points. Link this Share this Digg this Email Reprints

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