Euro little changed vs dollar in holiday thin trade

NEW YORK (BestGrowthStock) – The euro climbed from a two-month low against the dollar on Wednesday after losing over 2 percent in the last three sessions as investors considered the move overdone in thin trade in a holiday shortened week.

Part of the gain, which left the euro little changed against the dollar, was attributed to a U.S. report signaling improvement in the labor market. Investors took that as a positive further sign of recovery in the world’s biggest economy, raising risk tolerance.

Gains were muted by fears the euro zone fiscal crisis, currently centered on Ireland, could spread to other peripheral euro zone countries. Ireland’s four-year plan to make 15 billion euros in savings to bring down its record deficit left investors little impressed.

Peripheral euro-zone government bond yield spreads over Germany have widened.

A North Korean statement after Tuesday’s artillery clash that the South’s action was driving the peninsula to the brink of war earlier prompted investors to seek relatively safer-haven currencies.

Adding to the euro’s woes was a cut by Standard and Poor’s of its sovereign rating on Ireland, and a poor response to the sale of new 10-year bonds by Germany.

These factors earlier lifted the dollar to a two-month high against a currency basket.

The driver is “still Irish and euro zone concerns and we will be talking about this well into 2011,” said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey. “The market will continue to expect Portugal to apply (for aid) and then it will come down to Spain.”

EURO ADVANCE

Some traders said if investors were starting to also shun Bunds — considered a safe-haven asset — it was hard to see how the euro would stabilize in the near term despite Wednesday’s gains.

The euro was little changed at $1.3365, having hit a two-month low of $1.3284 and bouncing off its 100-day moving average — currently around $1.3297 — for the first time since early September.

“We’re going to see liquidity dry up and are already at 50 percent of normal volume which could explain some of the jittery market conditions,” said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The euro rally began in New York after the government report showed new U.S. claims for unemployment benefits dipped more than expected last week.

“The U.S. labor market has turned a corner which should be very positive for the U.S. economy in 2011,” said Kathy Lien, director of research at GFT in New York.

While the euro is down 6.6 percent against the dollar year to date, the single currency is only down 1 percent since April 10, the day before euro zone finance ministers approved a 30 billion euro emergency aid mechanism for Greece, the nation where the current bout of fiscal concerns began.

Analysts are still looking for the euro to test $1.3232, the 61.8 percent retracement of its August-November rally, before targeting $1.3000.

KOREA TENSIONS

The dollar index (Read more about the global trade. ) (.DXY: ) was down 0.1 percent at 79.662, having hit a high of 79.995, its strongest in two months.

Analysts said euro zone worries eclipsed concerns about tensions between North and South Korea, which most believed would not escalate into something more serious.

The dollar fell 1.2 percent against the South Korean won, erasing some of the 3.2 percent advance on Tuesday.. (Reporting by Nick Olivari; Editing by Andrew Hay)

Euro little changed vs dollar in holiday thin trade