Reuters: US Dollar Report: FOREX-Euro weak, yen checked by intervention jitters

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FOREX-Euro weak, yen checked by intervention jitters Jun 4th 2012, 08:31 Mon Jun 4, 2012 4:31am EDT * Euro shorts hit record high as bearish mood dominates * Yen off highs as market wary of intervention * Liquidity thin, jitters spark blip up in the yen By Anirban Nag LONDON, June 4 (Reuters) - The euro was under pressure near a two-year low against the dollar on Monday and growth-linked currencies fell, with mounting concerns over Spain's banking sector and global economic growth supporting flows into the greenback and the yen. Grim U.S. jobs data on Friday suggested the turmoil in the euro zone, which pulled the single currency down by about 6 percent last month, is taking its toll on the world's largest economy, stoking fears of a worldwide slowdown. The downbeat non-farm payrolls numbers were compounded by gloomy manufacturing data from China and Europe. The safe-haven dollar and yen usually gain in times of financial stress and economic uncertainty. The yen has outperformed the dollar as expectations of more quantitative easing by the Federal Reserve have grown, underpinning speculation that Japanese authorities could intervene soon. With the euro zone set to dominate the agenda in the early part of the week, more insight on potential monetary stimulus is expected from Wednesday's European Central Bank meeting, with markets positioning for an outside chance of an interest rate cut. On Thursday, Fed chief Ben Bernanke testifies before a congressional committee about the U.S. economy, which could offer more clues to possible policy shifts on the other side of the Atlantic. The euro eased to $1.2420, off a session high of $1.2443. It fell to $1.2288, its lowest level since July 2010 on Friday and traders cited large bids at $1.2370-80, while offers from funds to sell were layered above $1.2450. Trade was thin because London markets are closed. Against the safe-haven yen, the euro was flat at 96.92 yen staying above an 11-1/2-year low of 95.59 yen struck on Friday. "Clearly sentiment towards the euro is very bearish and we believe positioning against it is not all that extreme. Some investors like hedge funds cut positions ahead of the weekend so they will be looking to come back," said Beat Siegenthaler, currency analyst at UBS in Zurich. "While expectations of more QE by the Fed may help the euro, with no quick decision about Spain in sight, the pressure on it will remain." The euro's sell-off intensified last week after Spain's borrowing costs spiked on jitters it may need to issue more bonds to bolster its ailing banks, putting more stress on markets already concerned that Greece may exit the euro zone. Spanish Prime Minister Mariano Rajoy called on Saturday for the establishment of a central authority to oversee fiscal policy in the euro zone. Germany also wants a big leap forward in euro integration, but investors are doubtful whether such moves will restore market confidence in the shorter term. For now, market players saw few reasons to buy the single currency, though there could be bouts of short-covering. Short positions in the euro surged to the highest on record, the Commodity Futures Trading Commission said. NERVOUSNESS SPREADS Meanwhile, bets in favour of the dollar rose to their highest since at least mid-2008. The dollar index was flat at 82.860, having hit a peak of 83.542 on Friday, its highest level since late August 2010. The dollar inched up 0.1 percent to 78.05 yen, not far off Friday's trough of 77.65, the greenback's lowest since mid-February. The currency pair has been volatile on fears of yen-selling intervention by the Japanese authorities, a factor which will keep investors edgy. Underscoring the skittishness, the dollar briefly jumped as high as 78.50 yen after the benchmark Japanese share index, the Nikkei opened down 1.9 percent, with traders citing buying by a Japanese and a foreign bank. "It's nervousness all over until a clear direction emerges on a long-term trend," said Hisamitsu Hara, chief FX manager at Bank of Tokyo-Mitsubishi UFJ in Tokyo. "Currencies are locked in ranges with high volatility, with both the euro and the dollar facing limited upside due to their problems, while the yen's upside is also capped by wariness about intervention," he said. Bank of Japan Governor Masaaki Shirakawa said the bank is carefully watching the effect that recent rises in the yen could have on the country's economy and business sentiment, although his comments had no immediate market impact. The growth-linked Australian dollar fell 0.4 percent to $0.9665 while the New Zealand and Canadian dollars were slightly lower. Link this Share this Digg this Email Reprints

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