Reuters: US Dollar Report: FOREX-Euro falls on weak German data, Moody's warning

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FOREX-Euro falls on weak German data, Moody's warning Jul 24th 2012, 19:26 Tue Jul 24, 2012 3:26pm EDT * German data dims euro outlook * Moody's changes German rating outlook to negative * Greece could miss debt reduction -- EU officials By Wanfeng Zhou NEW YORK, July 24 (Reuters) - The euro tumbled to a two-year low against the dollar for a third consecutive session on Tuesday, pressured by weaker-than-expected German data, a day after Moody's warned of fallout from Europe's debt crisis on the region's strongest economies. Analysts said the euro looked poised to take out the key $1.20 area, but further losses could be limited as markets shift attention to a Federal Reserve meeting next week when policymakers will likely discuss the possibility of further stimulus for the U.S. economy. Manufacturing in Germany, the euro zone's biggest economy, contracted at its fastest pace in more than three years and its service sector also shrank. In France, factory activity fell at its fastest pace since May 2009. The data came a day after Moody's revised its outlook for Germany, the Netherlands and Luxembourg to negative, warning that Europe's top-rated countries may have to increase support for indebted states such as Spain and Italy. "There's overall caution and concern that the stronger countries may not have either the willingness or the ability to help out the periphery," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. The euro fell as low as $1.2040, its weakest level since June 2010, extending losses after some EU officials said Greece is unlikely to be able to be able to pay what it owes and further debt restructuring is likely to be necessary. It was last at $1.2052, down 0.5 percent. Officials from the European Union, International Monetary Fund, and European Central Bank are currently in Athens to assess the country's progress on complying with the terms of the bailout deal. Inspectors from the European Commission, the ECB and the IMF -- together known as the troika -- returned to Athens on Tuesday and will complete their debt-sustainability analysis next month, but informed sources said the conclusions were already becoming clear. It means Greece's official sector creditors -- the ECB and euro zone governments -- will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing. Against the yen, the euro lost 0.8 percent to 94.29 yen , having hit 94.09 yen, an 11-1/2-year low. The dollar lost 0.2 percent to 78.18 yen. "The continuing deluge of negative euro-related news has restrained the single currency's upside potential, leaving it vulnerable to further depreciation," said Ravi Bharadwaj, pricing and market analyst at Western Union Business Solutions in Washington. It doesn't help, he added, that "euro zone public officials have persistently acted like deer in the headlights when facing the region's extraordinary credit strains." The euro also fell against higher-yielding currencies. It traded at A$1.1789 against the Australian dollar, near Monday's record low of A$1.1679, and at C$1.2319 versus the Canadian dollar, also near a record low. Since the European Central Bank cut interest rates earlier this month, the euro has fallen heavily against a range of currencies as investors increasingly use it as a funding currency to purchase higher-yielding assets. Losses in the currency also accelerated after Spanish bond yields jumped well above the 7 percent danger level this week, raising fears Madrid will need a full-scale sovereign bailout. Spanish bond yields rose further, albeit less than on Monday, after the country paid its second-highest yield to issue short-term debt since the introduction of the euro in 1999. Analysts said worries that more Spanish regions will follow Valencia and request financial aid from Madrid would keep Spanish bond yields high and encourage investors to sell the euro. Earlier, the euro briefly got a lift after data showed China's manufacturing output grew at its fastest pace in nine months, with the overall trend for the currency remaining negative and global growth worries still intact. Attention could start to shift to Friday's first reading of U.S. second-quarter growth, analysts said. A weak number could boost expectations of another round of bond-buying, or QE3, from the U.S. central bank and weigh on the dollar. "The following week we will have the Federal Reserve and there will be a lot of discussions about QE3 and what the Fed can do and that will offset some of the euro weakness," said Andrew Busch, senior currency strategist at BMO Capital Markets in Toronto. Data earlier showed U.S. manufacturing this month expanded at its slowest pace since late 2010, hobbled by weak overseas demand for American goods, though a rise in domestic orders helped cushion the blow. Link this Share this Digg this Email Reprints

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