Reuters: US Dollar Report: Thwarted euro bears seek profit in pound, Canada

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Thwarted euro bears seek profit in pound, Canada Apr 25th 2012, 10:08 Wed Apr 25, 2012 6:08am EDT * Euro holds up vs dollar, yen despite region's troubles * Investors sell euro against sterling, Canadian dollar * Fed and BOJ's ultra-loose policy weighs on dollar, yen By Anirban Nag LONDON, April 25 (Reuters) - Investors frustrated at the euro's resilience against the U.S. dollar and yen despite the euro zone's interminable debt crisis are seeking to profit by selling the single currency in favour of the British pound and Canadian dollar. The euro has advanced against the dollar and yen this year, with the U.S. and Japanese currencies undermined by the prospect of ultra-low interest rates and the chance of even easier monetary policy from the Federal Reserve and Bank of Japan, analysts say. As a result, investors who want to bet against the euro are likely to find selling it against currencies such as the Canadian dollar, sterling or even the Swedish crown more rewarding than against the dollar, especially as economic recovery in the United States remains sluggish. "There are a lot of good reasons not to buy the euro, as growth in the region is deteriorating rapidly, sovereign debt problems are escalating and now political uncertainty," said Ned Rumpletin, head of G-10 FX strategy at Standard Chartered Bank. He said that while the dollar would do well in the medium term, the immediate outlook was uncertain as U.S. growth was expected to slow and the risk of more monetary stimulus remained. "We prefer to express euro bearishness against crosses like sterling and the Canadian dollar as these could have relative value for investors," he added. Data due on Friday is forecast to show first-quarter U.S. growth slowed to an annual pace of 2.5 percent from 3 percent in the previous quarter. With unemployment sticky around 8 percent, more dollar-negative monetary stimulus is possible. The Federal Reserve is expected on Wednesday to reiterate that interest rates will be held near zero until at least 2014. The Bank of Japan is expected to expand its asset purchase programme to support the economy, to the detriment of the yen. This explains why the euro has stubbornly held its ground above $1.30 and retained gains of more than 7 percent against the yen this year. "We are a little frustrated with the short euro and long dollar trade with the euro holding above $1.30 despite all the euro zone problems," said Stuart Frost, head of absolute returns and rates at fund manager RWC Capital, who is positioned for the euro to drop to $1.26 and is bearish on the yen too. "So short euro/sterling is the trade to be in, with a target of 78 pence while any dips in the Swedish crown against the euro will be a buy opportunity." LOOKING PEAKY On the face of it, the euro should be looking peaky. A gloomy economic outlook due to austerity measures in much of the euro zone means the European Central Bank is likely to keep monetary policy loose. And if funding conditions for lower-rated countries deteriorate, expectations of further ECB cash injections may gather momentum. In contrast, the UK, Canadian and Swedish central banks have recently signalled shifts away from further easing. Despite Britain slipping back into recession in the first quarter, the Bank of England does not appear keen to provide more stimulus. At the same time, the fact that UK gilts offer a safe haven to investors seeking to escape the euro zone could lead to further gains for sterling against the common currency. "We have been recommending short euro/sterling at 83.30 pence for a drop to 80 pence," said Ankita Dudani, currency strategist at RBS. "We are forecasting euro/sterling to drop to 80 pence by end of the second quarter." The euro last traded near 82.20 pence, not far from a 20-month low of 81.435 pence struck on Tuesday. Last week, the Bank of Canada signalled it might have to start raising rates because of an improving economic outlook and underlying inflationary pressures. Sweden's Riksbank surprised many investors by not lowering rates. This prompted investors to buy the crown and Canadian dollar and sell the euro . "We have gone short at C$1.3020 and target the C$1.2450 area multi-week," Westpac strategist Sean Callow wrote in a note. Analysts also reckon rates may have bottomed out in Norway and Sweden following recent cuts. "We continue to see euro/Norwegian crown and euro/Swedish crown as sell on rallies above 7.60 crowns and 8.90 crowns respectively," UBS's head of FX strategy, Mansoor Mohiuddin, said. Link this Share this Digg this Email Reprints

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