Reuters: US Dollar Report: FOREX-Euro falls for 3rd day, hurt by Europe data

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FOREX-Euro falls for 3rd day, hurt by Europe data May 2nd 2012, 15:23 Wed May 2, 2012 11:23am EDT * Euro falls vs dollar as euro manufacturing slides * Figures contrast with strong U.S. factory data * U.S. ADP report shows weaker-than-expected jobs creation * U.S. factory orders fall less than expected By Gertrude Chavez-Dreyfuss NEW YORK, May 2 (Reuters) - The euro fell for a third straight session against the dollar on Wednesday after soft European data rekindled fears about a deep and broader slowdown in the region ahead of key elections in France and Greece. The euro, however, briefly trimmed losses after a report showed the U.S. economy created fewer private-sector jobs than expected last month. It also came off its lows after speculation the European Central Bank could infuse euro-zone banks with more liquidity in another long-term refinancing operation. Wednesday's weaker euro zone data, not just in indebted smaller regional economies but in core nations, too, raised speculation over possible policy signals at Thursday's ECB monetary policy meeting. Italy's manufacturing sector shrank far more than expected, with new orders tumbling at their fastest rate in three years, and data from Germany, Spain and France also showed factory activity falling significantly. "Despite liquidity provisions from the ECB, the data shows that the long-term fundamental picture in the euro zone remains negative," said Brian Kim, currency strategist at Royal Bank of Scotland in Stamford, Connecticut. "The weakness seems to be across the board." The euro fell to $1.3121, its lowest in more than a week, though volumes were thin after the May Day holiday in Europe, and traders said this could cause exaggerated moves. The euro last traded at $1.3158, down 0.6 percent. The ECB meets on Thursday in Spain, with pressure on the bank to use bond buying and other measures to shield weaker euro members from additional pain. While it is widely forecast to keep interest rates unchanged, expectations are rising it may soon cut borrowing costs, eroding the euro's interest rate advantage. There was also speculation that the ECB could embark on another long-term refinancing operation to provide low-cost liquidity to euro zone banks, a potentially positive scenario for the euro. RBS' Kim said the re-introduction of the ECB's LTRO program could help the financial system in the near term, but "this would be just prolonging the euro zone's long-term malaise." With elections looming in Europe, political uncertainty has the potential to push the euro below $1.30 in coming weeks. It hit a two-week low against the safe-haven yen, dropping to 105.11 yen, and a 22-month low against the British pound. The euro was also hurt by data that showed the euro zone labor market continued to worsen as unemployment rose to match its record high of 10.9 percent, last seen 15 years ago. The data in the euro zone contrasted with better U.S. factory numbers a day earlier, although Wednesday's weaker-than-expected U.S. private sector jobs data did temper some optimism about the world's largest economy. The ADP report, however, is not necessarily the most accurate forecaster of the broader U.S. nonfarm payrolls data due on Friday. "After Tuesday's ISM manufacturing data, the market was primed for an upside surprise, so this definitely takes the wind out of the sails," said Boris Schlossberg, director of FX Research, GFT, Jersey City. "But ADP is always a big question mark, and tomorrow's ISM services will be critical as that tends to be a much better forecaster of the nonfarm payrolls number. The ADP report, however, had a bigger impact on dollar-yen trade, with the dollar giving up some of its gains after the data's release. The dollar was last at 80.220 yen, up 0.2 percent on the day and off a 2-1/2-month low of 79.640 yen hit on Tuesday. Pressure on the yen increased after a Moody's ratings agency official said Japan's delay in implementing a sales tax increase could bring forward "the day of reckoning" in the Japanese government bond market. U.S. factory orders also were on the weak side, but they were a little better than expected. Anecdotal evidence also suggested that U.S. factories began expanding as the second quarter started. Link this Share this Digg this Email Reprints

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