Reuters: US Dollar Report: FOREX-Euro weakens on wariness before elections, ECB

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FOREX-Euro weakens on wariness before elections, ECB Apr 30th 2012, 12:22 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. Link this Share this Digg this Email Reprints

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