Reuters: US Dollar Report: FOREX-Euro falls as ECB disappoints; focus shifts to U.S. jobs

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FOREX-Euro falls as ECB disappoints; focus shifts to U.S. jobs Aug 2nd 2012, 16:38 Thu Aug 2, 2012 12:38pm EDT * Euro erases gains after hitting four-week high above $1.24 * Draghi: ECB will draw up bond-buying plans in coming weeks * Investors await U.S. nonfarm payrolls data By Wanfeng Zhou NEW YORK, Aug 2 (Reuters) - The euro fell against the dollar in volatile trade o n T hursday after European Central Bank President Mario Draghi disappointed investors hoping for quick action to contain the euro zone debt crisis. Expectations going into Thursday's ECB meeting were high after Draghi fueled speculation of further bank purchases of Italian and Spanish bonds when he said last week he would do "whatever it takes to preserve the euro." But Draghi sent no signal of near-term action. Instead, he said the ECB will draw up plans in the coming weeks to make outright purchases to stabilize euro zone borrowing costs. That caused the euro to retreat nearly 3 cents from a four-week high above $1.24. The ECB's announcement came a day after the U.S. Federal Reserve stopped short of offering new monetary stimulus even as it said the U.S. economy has lost momentum. "Like the Fed....talk the talk, no walk the walk," said David Rosenberg, chief economist and strategist at Gluskin Sheff in Toronto. The euro fell as low as $1.2132 on Reuters data, a one-week low and off sharply from a session peak of $1.2404, the strongest level since July 5. It was last at $1.2143, down 0.7 percent. Against the yen, the euro slid as low as 94.90 and last traded down 0.9 percent at 94.98 yen. It also hit a record low against the Australian dollar around A$1.1600. At a press conference after the ECB's decision to keep interest rates at 0.75 percent, Draghi said the ECB would only act after euro zone governments have activated bailout funds to do the same and any intervention would depend on troubled countries making a request and accepting strict conditions and supervision. He also indicated that German central bank chief Jens Weidmann had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action. "Draghi tried to deliver a fait accompli to the ECB board, seeming to promise action, which he was not authorized to do. It appears he simply did not have his ducks lined up," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. Investors will shift attention to Friday's U.S. government nonfarm payrolls data for July. Fed officials o n W ednesday reiterated their disappointment with high unemployment and the jobs data will closely watched by investors to assess the possibility and timing of further stimulus from the U.S. central bank. The dollar slipped 0.3 percent to 78.23 yen. LAY THE GROUNDWORK Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, said further losses in the euro should be limited. "Even though some people are disappointed, I think what he (Draghi) said was pretty significant. He seems to have laid the groundwork for substantial policy action," he said. "It wouldn't surprise me if we get a risk rally in the days ahead, because Draghi has not altogether dashed hopes that there's a big bazooka on the sidelines." Spanish 10-year government bond yields climbed above 7 percent, a level seen unsustainable. The cost of insuring Italian and Spanish debt against default also rose after the ECB meeting. Spain and Italy said in a joint statement on Thursday that the measures agreed at the last EU summit should be put in place as soon as possible so the agreed mechanisms aimed at lowering borrowing costs are ready for use if needed. Prime Minister Mario Monti said he did not know if Italy would seek European Union help to lower borrowing costs. Spain's Prime Minister Mariano Rajoy, asked three times by reporters whether Spain would activate EU mechanisms aimed at buying sovereign debt, said he welcomed the ECB's statement that it would use non-conventional measures and was working on implementing EU summit decisions. Link this Share this Digg this Email Reprints

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