Reuters: US Dollar Report: FOREX-Euro falls to more than 3-wk low as EU leaders meet

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FOREX-Euro falls to more than 3-wk low as EU leaders meet Jun 28th 2012, 20:02 Thu Jun 28, 2012 4:02pm EDT * Euro falls to 3-week low vs dollar, yen * Italy pays dearly to sell bonds, Spanish bond yields rise NEW YORK, June 28 (Reuters) - The euro slipped against the dollar for a fourth straight day on Thursday and touched its lowest in more than three weeks as doubts persisted that a summit of European leaders will make progress in resolving the region's deepening debt crisis. But investors were reluctant to punish the euro further as expectations for the summit were already very low. Any surprise positive development could spark a short squeeze and give the euro zone common currency a lift, analysts said. A short squeeze is when those who bet against a currency or security are forced to buy to reduce losses when the market moves against their bets. "The fact that we're not lower than we are right now is partially because investors are still hesitant to put on any major positions on the off chance that we do get some kind of a surprise from Europe," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. European Union leaders began the summit on Thursday deeply divided over how to resolve the euro zone's debt crisis. Many international investors have deserted Spanish and Italian debt, pushing yields to levels that Madrid at least cannot afford for long as it tries to save banks ravaged by a property market collapse and rein in an overshooting deficit. German Chancellor Angela Merkel has previously dismissed pleas from Rome and Madrid for rapid measures to support their bonds. French President Francois Hollande advocates joint "eurobonds", which would bring down borrowing costs for the weak because the pool of guarantors would include the strongest - principally Germany. Germany, by contrast, does not want to use its credit rating to support others unless they share control of tax and spending powers first. On arriving at his first full EU summit after six weeks in office, Hollande said he expected agreement on emergency steps to help euro zone partners whose borrowing costs had reached unsustainable levels. The euro fell as low as $1.2405 on Reuters data, the weakest since June 4. It was last down 0.2 percent at $1.2449. Traders said the euro extended losses after stop-loss sell orders were triggered on the break below $1.2440 but when it failed to break through stop-loss orders at $1.2400, it rebounded from the low. More losses would see it target a two-year low hit in early June of $1.2286. The euro also came under pressure after a spokesman for German Finance Minister Wolfgang Schaeuble said that a report that Germany could be willing to move sooner than expected to accept shared liability of euro zone debt was not true. Against the yen, the euro slid 0.6 percent to 98.82 yen , having earlier fallen to 98.30 yen, the lowest since June 6. Spanish 10-year yields hovered near the 7 percent level that forced other highly indebted countries to seek bailouts. Investors worry that Spain, the euro zone's fourth-largest economy, will have to ask for more aid than the 100 billion euros already approved for Madrid to bail out its banks. Italy sold more than 5 billion euros in five- and 10-year bonds but at elevated borrowing costs. Analysts said that with the market so focused on the outcome of the summit, trade in the euro would remain choppy and driven by headlines during the meeting. "If you are a day trader it's easy to jump on different headlines but if you are a normal trader you have to wait and see what actually gets decided," said David Bloom, head of FX research at HSBC in London. "But it will be hard to be disappointed when expectations are so low." ECB EYED The prospect of active anti-crisis steps from the European Central Bank, possibly including more long-term fund injections and cutting interest rates, could support the euro. ECB Executive Board member Peter Praet said on Wednesday there was nothing to stop the bank cutting interest rates, now at 1 percent, and 48 out of 71 economists polled by Reuters expected a cut next week. There are "some expectations that the ECB may have to pick up the slack for EU policymakers," Esiner said. "There's growing expectation that we could see either an interest-rate cut by the ECB or some sort of new liquidity operation. Either of those would be mildly supportive for the euro." The dollar fell to a one-week low against the yen around 79.21 yen, helped by month-end selling by Japanese exporters. It was last down 0.4 percent at 79.41. The dollar rose to a more than three-week peak versus the Swiss franc. It was last at 0.9646 franc, up 0.2 percent. With the market focused on Europe's debt problems, there was little impact from a U.S. Supreme Court ruling on Thursday upholding the centerpiece of President Barack Obama's signature healthcare overhaul law that requires most Americans to get insurance by 2014 or pay a penalty. Link this Share this Digg this Email Reprints

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