Euro edges up vs dollar; pound dips on debt warning

By Steven C. Johnson and Vivianne Rodrigues

NEW YORK (BestGrowthStock) – The euro rose on Tuesday as investors booked profits a day after the currency hit its lowest level against the dollar since early 2006, and the pound fell after a ratings agency urged Britain to cut its deficit.

The euro also hit an all-time trough below 1.38 Swiss francs but rebounded sharply, with traders citing Swiss National Bank intervention to weaken the franc. The SNB declined to comment.

Against the dollar, the euro rose above $1.20 after tumbling to $1.1876 on Monday, its lowest level since March 2006. But analysts said the market was still anxious about debt levels in several euro zone countries and debt auctions this week from Portugal and Spain.

“The euro decline isn’t over,” said Marc Chandler, senior strategist at Brown Brothers Harriman in New York. “There are supply concerns this week, and what we’re seeing now is a brief respite. A rise above $1.20 would be a good chance to sell.”

In late afternoon trading in New York, the euro was up 0.4 percent at $1.1954 after hitting a session peak at $1.2008, according to Reuters data. Analysts said it also saw support after euro zone ministers made final arrangements Monday to set up funds for countries facing debt problems. It was up 0.3 percent at 109.15 yen.

The euro has shed more than 16 percent against the dollar this year, and some economists worry this will hurt U.S. exports to the euro zone, a fear Chicago Federal Reserve President Charles Evans downplayed on Tuesday.

SWISS SPECULATION, UK DEBT WORRIES

The euro’s abrupt rebound from a low against the Swiss franc earlier spurred talk of intervention by the Swiss National Bank.

Switzerland’s central bank has intervened since 2009 to prevent excess franc strength but slowed its euro purchases recently as the euro fell (Read more about the trembling euro. ) below 1.40 francs.

The euro was last 0.6 percent lower at 1.3759.

“Certainly the price action minutes ago seemed to suggest intervention. though we’ve no official confirmation,” said one market participant at a U.S.-based bank about the euro’s jump.

Sterling fell 0.3 percent to $1.4418 after Fitch Ratings said the UK was facing a “formidable” fiscal challenge and said Britain’s public debt ratio had climbed more quickly than those of other top-rated sovereign credits.

“It’s more of the contagion fear that’s been gripping markets for months now,” said John Doyle, strategist at Tempus Consulting in Washington.

Against the yen, the dollar was flat at 91.34. Earlier, new Japanese Prime Minister Naoto Kan chose a fiscal conservative as his finance minister. Kan has in the past advocated a weaker yen to help Japanese exports and fight deflation, but Chandler said that might be wishful thinking as long as markets are in crisis mode.

During times of risk aversion, the yen tends to rise as investors exit positions in riskier currencies and assets.

On Monday, technical analyst Robert Prechter told the Reuters Investment Outlook Summit in New York that the euro is likely to bottom out against the dollar within two weeks.

In the meantime, though, Citigroup strategists said they expect risk aversion to continue to hold sway in markets.

The single currency has yet to bottom out against the dollar and may eventually reach parity, Citigroup chief global currency strategist Steven Englander said at the Reuters Investment Outlook Summit in New York on Tuesday.

Englander sees the euro between $1.10 and $1.15 over the next one to three months. However, a weaker euro would help to offset slower growth in euro zone countries such as Greece and Spain, which will eventually help the currency recover.

In the long run, “I think time is on the side of the euro,” he said, provided countries stick to austerity budgets.

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(Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)

Euro edges up vs dollar; pound dips on debt warning