Euro struggles after slide; data helps dollar

By Ian Chua

SYDNEY (BestGrowthStock) – The selloff in the euro eased slightly early in Asia on Monday, helping the single currency maintain a foothold above $1.4000, but worries about peripheral euro zone sovereigns looked set turn up the heat on the euro.

Now that the Federal Reserve meeting and outcome have come and gone, the market will be increasingly focused on developments in fringe euro zone countries, traders said.

Last Friday, both the cost of protecting Irish government bonds from default and the 10-year Irish bond yield spread over benchmark German debt hit record highs, weighing on the single currency.

JPMorgan analysts said bond managers have increased their periphery underweights and warned each move higher in spreads would make it less likely that Ireland will be able to access the primary market next year.

“Given the broader spread widening on the periphery and some ebbing in euro zone data and some pick-up in U.S. data, I’d suggest the euro may be a sell this week,” said Greg Gibbs, strategist at RBS in Sydney.

“If it pans out, the euro could move back down toward $1.35.”

The euro dropped from a 10-month high around $1.4281 set last Thursday to $1.4051, versus $1.4031 late in New York on Friday. Against the Japanese currency, the euro fetched 114.14 yen, after having fallen from above 115 yen.

News the Greek government has apparently won enough support in local elections to press ahead with an austerity programme gave the euro only a slight reprieve.

The dollar bought 81.22 yen, steady from the New York close, but up from a 15-year low of around 80.21 yen plumbed last week.

Dollar/yen is flirting with the 21-day moving average, and capped at around 82 yen, where a lot of dollar selling from Japanese exporters are expected.

The embattled dollar rose last Friday after data showed a surge in employment last month as private companies hired workers at the fastest pace since April.

But prospects for the greenback to perform against higher-yielding currencies remain weak at best, as the market sees the Federal Reserve’s commitment to inject $600 billion to boost a flagging recovery as greenlight to use the dollar as a funding currency.

Bernanke on Saturday defended the move, saying it was ‘critical’ for global stability that the U.S. economy regains its strength.

Against the gloomy U.S. and euro zone backdrop, commodity-based currencies such as the Australian dollar are likely to remain favored.

The Aussie was last at $1.0146, not far off a 28-year peak of $1.0182 scaled on Friday.

“We see the Reserve Bank of Australia still looking to hike rates over coming months and tentatively pencil in a 25-basis-point December hike,” said Nomura’s analysts.

(Additional reporting by Hideyuki Sano in TOKYO)

Euro struggles after slide; data helps dollar