Reuters: US Dollar Report: FOREX-Euro dips as market expects ECB to highlight risks to growth

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FOREX-Euro dips as market expects ECB to highlight risks to growth May 3rd 2012, 12:25 Tweet Share this Email Print Thu May 3, 2012 8:25am EDT * ECB keeps interest rates on hold at 1.0 percent * Euro falls after Spanish auction yields jump * Investors expecting dovish Draghi comments By Nia Williams LONDON, May 3 (Reuters) - The euro fell against the dollar on Thursday after a jump in Spain's borrowing costs at a debt auction highlighted concerns about the country's problems, and as investors expected the ECB to focus on risks to growth at a news conference. The common currency briefly edged higher after ECB policymakers kept interest rates on hold at 1.0 percent as expected, before paring those gains to trade down 0.2 percent on the day at $1.3130. It hovered within sight of the 10-day low of $1.3121 hit on Wednesday after weaker-than-expected euro zone manufacturing data and rising unemployment figures. Immediate support was seen around the 100-day moving average at $1.3118 and the April 23 trough of $1.3103 Market players will be more focused on ECB President Mario Draghi's news conference at 1230 GMT when he is likely to sound cautious on growth but resist calls to restart the bank's bond-buying programme to stem rising peripheral debt yields. "Expectations the ECB would do anything on rates were very low so the muted reaction in the euro makes sense. We are now looking for the tone Draghi will be providing," said Michael Sneyd, currency strategist at BNP Paribas. "Our economists think there is a case for Draghi arguing further rates cuts will be needed and focusing on the growth side so we could see euro/dollar move lower after the meeting." Some analysts said the euro may struggle to find direction from Draghi's news conference. If he highlights risks to growth that would generally be associated with a weaker currency. But it could also support investor confidence that the ECB will take steps to support the periphery if needed in coming months and that could be positive for the euro. "My fear for the ECB is that the market is edging towards Draghi being a bit more dovish but he will not match those expectations and disappoint a bit. People will not be entirely sure how to play that," said Daragh Maher, currency analyst at HSBC. If Draghi sounds less concerned than expected about growth risks, and gives no hint of further liquidity injections or bond buying, that may prompt some market players to buy the euro. However, other investors could fret that the debt crisis will worsen without the ECB taking action and sell the common currency, Maher said. The euro also came under pressure earlier in the European session when Spain sold 2.5 billion euros of three- and five-year bonds to solid demand, but yields jumped compared with previous auctions. It was the first test of market appetite for Spanish debt since the country slipped into recession and had its credit rating cut again. ELECTIONS LOOM Some market players saw an increasing chance of the euro moving lower ahead of elections in France and Greece at the weekend, which could fuel political uncertainty. A break below the bottom of the roughly $1.30 to $1.35 range that the euro has been in since January could open the door to a test of the 2012 low around $1.2624. However, a Reuters poll on Thursday suggested the euro was more likely to slowly grind lower, with consensus forecasts putting the euro at $1.30 in one month's time, $1.29 in three months and $1.28 in six months. Pressure on the euro saw the dollar index rise to 79.250, p utting further distance from a two-month trough of 78.603 plumbed on Tuesday. Against the yen, the dollar inched up 0.3 percent to 80.38 yen, holding above Tuesday's 10-week low of 79.64. The New Zealand dollar fell after a jump in the local jobless rate prompted markets to price in a small chance of a rate cut this year, a dramatic turnaround from a couple of weeks ago. The market is implying a roughly 40 percent chance of a cut at the Reserve Bank of New Zealand's next policy meeting. The New Zealand dollar slid around 1 percent on the day to US$0.8012, a low last seen in late January. Traders reported an options barrier at US$0.8000. Tweet this Link this Share this Digg this Email Reprints Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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