Reuters: US Dollar Report: FOREX-Euro down across the board as Merkel weighs

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FOREX-Euro down across the board as Merkel weighs Jul 18th 2012, 15:51 Wed Jul 18, 2012 11:51am EDT * Traders sell euro after media report of Merkel comments * Euro hits record low vs Aussie; 3-1/2-year vs sterling * Bernanke repeats Tuesday testimony By Gertrude Chavez-Dreyfuss NEW YORK, July 18 (Reuters) - The euro fell broadly on Wednesday after a media report cited comments from German Chancellor Angela Merkel that raised concerns about the future of the euro zone, which rattled investors already cautious about the outlook for the common currency. "We have not yet shaped the European project in a way that we can be sure that everything will turn out well, we still have work to do," Merkel said. However, she added that she was "optimistic that we will succeed," a reiteration of her usual line on the survival of the euro. The comments were contained in an interview posted on Merkel's Christian Democratic Union party's website, according to a media report. The common currency sold off across the board following her comments, falling to a session low against the U.S. dollar, a record trough against the Australian dollar, an 11-1/2 year low versus the Swedish crown, and a fresh 3-1-/2 year low against sterling. Euro zone peripheral bond yields also rose, adding to downbeat market sentiment. "The initial move lower was purely a result of Merkel's comments -- the very fact that there is a seed of doubt has undermined the euro," said Tommy Molloy, chief dealer at FX Solutions in Ridgewood, New Jersey. "That might be grandstanding to some extent, forcing periphery nations to make decisions and highlighting the risks out there. Because Merkel can't always be the strong and reassuring hand and so sometimes you have to give some sort of a threat in order to get something done." The euro fell 0.3 percent versus the dollar to $1.2253, falling to session lows of $1.2215, not far from a two-year low of $1.2162 hit last week, as traders seized on the first part of Merkel's statement. Molloy said the euro was right in the middle of the $1.2250-$1.2295 range. "Either side of that being violated would mean a move of the next 50 pips." Comments from the European Central Bank policymaker Joerg Asmussen over the future of the euro zone's permanent bailout fund and Europe's growing north-south divide also weighed on the currency, market players said. On Tuesday, the euro gained against the dollar after U.S. Federal Reserve Chairman Ben Bernanke gave few clear hints about another round of quantitative easing, although he left the door open to more of these measures to boost growth in the world's biggest economy. Risk assets saw something positive about Bernanke's comments, although as TD Securities pointed out even if more easing is likely, it is not going to happen anytime soon. HSBC echoed TD's view, adding that the Fed will ease only if the labor market does not show signs of improvement. But as it stands, the Fed will not have another employment report available to consider at its next meeting on July 30-August 1, but it will have had two monthly jobs data by the following monetary meeting on September 12-13. So the earliest the Fed could act if necessary would be in September, HSBC said. As expected Bernanke, in his appearance before the U.S. House Financial Service Committee, repeated his message from Tuesday's testimony, in which he was downbeat on the U.S. economy but offered no explicit hints of further easing. The dollar gained 0.1 percent against a basket of currencies, but slipped 0.2 percent versus the yen to 78.92 yen. EURO OUTLOOK The overall trend was still for a weaker euro given concerns about high Spanish and Italian bond yields and concerns Spain will not be able to avoid a full-scale bailout. Bad loans at Spanish banks hit an 18-year high in May at 8.95 percent of their outstanding portfolios, up from 8.72 percent in April, Bank of Spain data showed. The euro slipped 0.6 against the Japanese yen to 96.51 , eyeing a six-week low of 96.12 yen touched on Monday as investors sought safer ground, including bonds offering negative yields in countries such as Germany and Finland. Germany sold two-year bonds at a negative yield at auction for the first time on Wednesday. "That outcome was in fact in line with prevailing market yields, so in one sense the results should not have been a surprise," said Bob Lynch, global head of FX strategy at HSBC in New York. "Nonetheless, when two-year paper is auctioned at negative yields, it suggests market dislocations, stresses, and safe-haven biases, conditions that have been consistent with the broadly weaker euro." The euro hit an 11-1/2 year low of 8.4785 crowns against the Swedish crown and a record low of A$1.1858 against the Australian dollar. Link this Share this Digg this Email Reprints

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