Euro down on growth worries

By Wanfeng Zhou and Steven C. Johnson

NEW YORK (BestGrowthStock) – The euro weakened against the dollar on Thursday and touched a record low against the Swiss franc on fear that harsh fiscal tightening in Europe would dampen an already-weak recovery.

While investors were relieved that Spain and Portugal were taking steps to cut budget deficits, they also feared this would slow down euro zone growth. That knocked the euro down 0.7 percent to $1.2535, about 25 cents from last week’s 14-month low.

On Monday, the currency approached $1.31 following the announcement of a $1 trillion bailout for financially troubled euro zone countries, but market optimism did not last long.

“There’s a definite concern that the reduction in government expenditures will cause a precipitous decline in GDP,” said Jessica Hoversen, a fixed income and currency analyst at MF Global in Chicago. “Europe basically looks like a zombie economy, and on top of it, you’re seeing a massive retrenchment in government spending.”

Traders said the euro has broken the bottom of its recent trading range near $1.2610 and is expected to test key support near $1.25. Selling would likely accelerate beneath $1.25, pushing the euro toward $1.2330, its October 2008 low.

The euro shed 1.3 percent to 116.06 yen and hit a record low of 1.3997 Swiss francs, according to EBS. The dollar fell 0.6 percent to 92.60 yen.

Sterling fell 1.5 percent to $1.4620, stung by data showing the UK goods trade deficit widened more than expected in March. [ID:nONS006657] That came after Bank of England Governor Mervyn King said weaker euro zone export markets had increased growth risks for the British economy.

Bank of Tokyo-Mitsubishi UFJ suggested investors sell the pound versus the U.S. dollar, targeting $1.3800.

“The downbeat assessment from Governor King yesterday, the confirmation from the election outcome of an ‘accelerated reduction’ in fiscal spending cuts and the continued turmoil in the euro-zone — the UK’s main trading partner — strengthens our belief that the pound has further to fall against the dollar,” the firm wrote to clients.

MORE DOLLAR-POSITIVE U.S. DATA

The dollar extended gains versus the euro after data showed the number of U.S. workers filing new applications for unemployment insurance fell last week.

“The job market is continuing to improve, though at a glacial pace,” said Boris Schlossberg, director of currency research at GFT in New York.

Analysts said recent strong U.S. data added to the view that U.S. interest rates will likely rise more quickly than those in the euro zone or Japan.

The Australian dollar was up 0.3 percent at $0.8961, but retreated from a session high of $0.9026 reached after stronger-than-expected Australian employment data.

But analysts said further gains could be limited as Europe’s debt crisis and worries about global economic strength may conspire to keep Australian interest rates on hold.

Stock Research Tools

(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)

Euro down on growth worries