Reuters: US Dollar Report: FOREX-Euro tumbles as ECB comes up short; U.S. jobs eyed

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FOREX-Euro tumbles as ECB comes up short; U.S. jobs eyed Aug 2nd 2012, 18:48 Thu Aug 2, 2012 2:48pm EDT * Euro slides after hitting four-week high above $1.24 * Draghi: ECB will draw up bond-buying plans in coming weeks * Poll shows ECB likely to buy bonds, cut rates in September. * Investors await U.S. nonfarm payrolls data By Julie Haviv and Wanfeng Zhou NEW YORK, Aug 2 (Reuters) - The euro slid for a second straight day against the dollar in volatile trade on Thursday after European Central Bank President Mario Draghi quashed expectations of immediate action to remedy the region's debt crisis. Investors had high hopes headed into the ECB meeting after Draghi last week fueled speculation of further bank purchases of Italian and Spanish bonds when he said 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. The single currency shared by 17 countries briefly catapulted to a four-week high of $1.2404 against the dollar on Reuters data after the ECB announcement, but swiftly tumbled to a one-week low of $1.2132 as investors digested the news. The euro's sharp decline marked the biggest one-day move in cents since Aug 8, 2011. Investors will now focus on Friday's U.S. non-farm payrolls report, which could create another day of volatile trading. 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. Stephen Jen, hedge fund manager at SLJ Macro Partners in London, said he approves of the ECB's decision. "In contrast to the Fed, the ECB took the opportunity to actually exert more pressure on the governments to do more, as a pre-condition ... for the ECB to join in," he said. "At the end of the day, we all know that what the ECB might do will only buy time." 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. The ECB will probably begin purchasing Italian and Spanish bonds in September, when also it is likely to cut its main refinancing rate to a new record low of just half a percent, a Reuters poll found on Thursday. "Investors have now been reminded that there are no quick fixes for the problems in Europe, and that Mr. Draghi is not about to undermine the credibility and the integrity of the ECB to buy Spain 6 months of tranquility," Jen said. The euro last traded at $1.2154, down 0.6 percent. Against the yen, the euro slid as low as 94.90 and last traded down 0.8 percent at 95.12 yen. It also hit a record low against the Australian dollar around A$1.1600. "History will be more kind to the ECB than to the Fed, I think," Jen said. "The market demanded short-term fixes, but did not get it." Draghi 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. 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 as unsustainable. The cost of insuring Italian and Spanish debt against default also rose after the ECB meeting. Spain and Italy said it was premature to say if they will seek the activation of EU mechanisms to buy their debt and bring down their borrowing costs. Investors will shift attention to Friday's U.S. government nonfarm payrolls data for July, with a 100,000 payroll gain expected, according to a Reuters poll. Fed officials on Wednesday 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 last traded down 0.3 percent to 78.24 yen, according to Reuters data. Link this Share this Digg this Email Reprints

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