Reuters: US Dollar Report: FOREX-Weak euro zone data, Spain worries knock euro

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FOREX-Weak euro zone data, Spain worries knock euro Jul 24th 2012, 11:42 Tue Jul 24, 2012 7:42am EDT * Euro hurt by weak German, euro zone PMI data * Moody's changes German rating outlook to negative * Troika visits Athens to relaunch economic plan * Spain bailout fears grow as yields stay elevated By Jessica Mortimer LONDON, July 24 (Reuters) - The euro fell against the dollar on Tuesday after weak euro zone data fuelled concerns about slowing growth, even in Europe's largest economies, and it looked likely to extend losses on concerns Spain may need a full bailout. Germany's purchasing managers index showed both the manufacturing and services sector shrinking more than expected in July, while the equivalent French manufacturing survey was also well below forecasts. The data came a day after Moody's changed 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. 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 single currency. Spain was forced to pay higher yields on short-term debt at a sale on Tuesday while Spanish borrowing costs remained at levels which analysts say are unsustainable in the long term. "There is definitely a risk the euro could go below $1.20 ... This is not just about worries about Spain. We are also in an environment where the global growth picture is faltering," said Arne Lohmann Rasmussen, head of currency research at Danske Bank in Copenhagen. "The euro's sell-off lately has been quite dramatic, so we could get a rebound. The big question is whether a rebound is sustainable and our view is that it is not." The euro was down 0.15 percent at $1.2094, not far from a two-year low of $1.2067 touched on Monday as concerns about Spain's debt problems intensified. It gained only a brief lift earlier 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. Traders said the euro had support at an options barrier at $1.2050 and below that at the psychological level of $1.2000. Below there the next target would be the 2010 low at $1.1876. PMI data showed private sector activity in the euro zone as a whole shrank for a sixth successive month, which data collector Markit said was consistent with a quarterly GDP fall of 0.6 percent. "The PMI numbers were weak as expected, and the risk is that the ECB (European Central Bank) will potentially ease more," said George Saravelos, FX strategist at Deutsche Bank. RATE CUT A rate cut or cash injection from the ECB could give investors even less incentive to hold the euro. Since the ECB cut interest rates earlier this month the euro has fallen heavily against a range of currencies, including those which usually fall in times of heightened risk aversion. It traded at A$1.1770 against the Australian dollar, near Monday's record low of A$1.1690, and at C$1.2342 versus the Canadian dollar, also near a record low. The euro fell 0.5 percent against the safe-haven yen to 94.50 yen, holding above Monday's low of 94.23 yen, its lowest in nearly 12 years. The near-term outlook for the euro and riskier currencies will also be influenced by the outcome of a visit to Athens by inspectors from the troika of international lenders whose bailout loans are keeping Greece from going bust. However, analysts said poor U.S. data may slow the euro's decline against the dollar even as it falls against other currencies. Figures on Friday are expected to show growth slowing in the world's largest economy. The dollar index, which measures its value against a basket of currencies was at 83.871, just below Monday's two-year high of 83.999. Link this Share this Digg this Email Reprints

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