Reuters: US Dollar Report: FOREX-Euro off 3-week low but Spain worries persist

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FOREX-Euro off 3-week low but Spain worries persist Oct 1st 2012, 08:35 Mon Oct 1, 2012 4:35am EDT * Euro recovers, but Spanish uncertainty weighs * Likely Moody's downgrade could push Madrid to seek bailout * Euro zone PMI not as bad as earlier estimates By Anirban Nag LONDON, Oct 1 (Reuters) - The euro recovered after hitting a three-week low on Monday as euro zone manufacturing data was not as bad as expected, but uncertainty about when Spain would seek a bailout still weighed. While an audit of Spain's banks failed to throw up any surprise, investors are awaiting the outcome of Moody's rating agency's latest review of Spain's sovereign rating. Europe's fourth-largest economy may be downgraded to junk status, piling pressure on it to seek an international bailout soon. The euro was slightly higher on the day at $1.2865, recovering from a three-week low of $1.2804 hit early in Asian trade and breaking below support at its 200-day moving average at $1.2823. Earlier on Monday, weak economic data from Japan, China and other parts of Asia sapped investors' appetite for risk, to the benefit of safe-haven currencies. The euro faces near-term technical resistance at $1.2960, the 38.2 percent retracement of its Sept. 17-27 slide. "We will see the euro head lower until Spain applies for a bailout and the probability of that happening could rise if Moody's downgrades Spain," said Adam Myers, senior foreign exchange strategist at Credit Agricole. "A downgrade could force Spain's hand in seeking a bailout and should see a relief rally in the euro. But until that happens, weak economic data will add to the downward pressure on the euro." Data on Monday showed France's manufacturing sector deteriorated sharply in September, while the Purchasing Managers' Index (PMI) for Europe's largest economy, Germany, rose to 47.4 in September, its highest since March. It was still below the 50 line that divides growth from contraction. The PMIs for Italy and Spain were not bad as expected, providing some relief for the euro, which has been beset by worries about sovereign debt and the banking sector. An independent audit released on Friday showed Spain's banking sector would need 59.3 billion euros in additional funds to cope with an economic downturn, but Spain said only 40 billion euros would come from European aid while the rest could be raised by the banks themselves. "Basically, the result of Spain's bank audit was not bad news in itself, but worries remain about that country and about Greece as well," said Kimihiko Tomita, head of foreign exchange at State Street Global Markets in Tokyo. Inspectors from the "troika" of international lenders - the International Monetary Fund, the European Central Bank and European Commission - are scheduled to return to Athens this week to assess Greece's progress on reforms. Two German magazines reported on Saturday that Greece would receive its next tranche of international aid, despite budget shortfalls and slow fiscal progress, because the euro zone wants to prevent a Greek exit. DOLLAR WEAKNESS Currency speculators boosted bets against the dollar in the latest week to the highest in more than a year, according to data from the Commodity Futures Trading Commission released on Friday. The dollar was flat against the yen and off a more than two-week low of 77.43 yen hit on Friday, changing hands at 77.90 yen. Market reaction was muted to news that Japanese Prime Minister Yoshihiko Noda had tapped Koriki Jojima, a senior lawmaker in the ruling Democratic Party of Japan, as the new finance minister in a cabinet shakeup. Jojima is expected to maintain the government's policy on budget reform and currency intervention. The Bank of Japan's quarterly tankan survey of business sentiment released on Monday showed big Japanese manufacturers expect the dollar to average around 79.06 yen in the fiscal year through March 2013. The tankan survey showed that the mood among major manufacturers had worsened in the latest quarter and they expect it to keep sagging, dragged down by weak Chinese and European demand. Data on Monday showed China's official factory purchasing managers' index rose to 49.8 in September from August's 49.2. The figure was in line with expectations but pointed to a continued contraction in activity. Unease about Spain's situation as well as lacklustre Chinese data pressured commodity currencies, with the Australian dollar slipping about 0.2 percent to $1.0360, after hitting a three-week low of $1.0327. Link this Share this Digg this Email Reprints

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