Reuters: US Dollar Report: FOREX-Euro weakens as Merkel comments weigh

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FOREX-Euro weakens as Merkel comments weigh Jul 18th 2012, 13:23 Wed Jul 18, 2012 9:23am EDT * Traders sell euro after media report of Merkel comments * Markets await second day of Fed chief Bernanke's testimony * Euro hits record low vs Australian dollar 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 on the uncertain future of the euro zone, rattling investors already cautious about the outlook for the common currency. "We have not yet shaped the European project so that we can be sure that everything will turn out well, we still have work to do," she 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 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 and an 11-1/2 year low versus the Swedish crown. Euro zone peripheral bond yields also rose, adding to downbeat market sentiment. "It's all about Merkel comments. She's kind of putting pressure on the other government leaders to sort of move in the direction of the leaders' meeting," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. "At the beginning of the crisis, we were not hearing any mention of the euro not surviving, but the mere fact that Merkel made a comment about the euro project has raised concern." The euro fell 0.6 percent versus the dollar, from flat on the day before the report came out, to $1.2219, not far from a two-year low of $1.2162 hit last week, as traders seized on the first part of Merkel's statement. "Overall the picture is still very negative and the news flow of policy and data is working against the euro this morning," said Ian Stannard, head of European FX strategy at Morgan Stanley. 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. Bernanke speaks before Congress at 1400 GMT on Wednesday and is expected to repeat 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 question-and-answer portion will provide the only opportunity for Bernanke to fine-tune his Tuesday message. Some analysts said perceived riskier currencies could come under pressure if the Fed appeared to be unwilling to ease policy further. If, on the other hand, policymakers looked more likely to pump more dollars into the system, the greenback could soften. The dollar gained 0.3 percent against a basket of currencies, but slipped 0.1 percent versus the yen to 78.96 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. "We suspect that continued signs of economic malaise in Europe and stress in European fixed income markets will keep the single currency under pressure over the medium term," Citigroup strategist Andrew Cox said in a note. The euro slipped against the Japanese yen to 96.51 , eyeing a six-week low of 96.17 yen touched on Monday as investors sought safer ground, including bonds offering negative yields in countries such as Germany and Finland. 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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