Euro zone debt jitters hit euro

By Ian Chua

SYDNEY (BestGrowthStock) – The euro traded just above $1.3900 early in Asia on Tuesday after having fallen for a second straight session overnight, weighed by disappointing German data and heightened concerns about peripheral euro zone debt.

The single currency fell as low as $1.3885, down 2.8 percent from a 9-1/2-month high of $1.4281 set last week. A break through support around $1.3860, this month’s low so far, could trigger a near-term move toward $1.3700.

“We’ve probably seen a short-term top in the euro,” said Grant Turley, strategist at ANZ in Sydney.

Following the U.S. Federal Reserve’s policy setting meeting last week and the decision to inject $600 billion to spur a flagging recovery, market attention has quickly latched on to the peripheral euro zone sovereign debt problem as a fresh driver.

Worries about a political impasse in Dublin ahead of a key budget vote saw 10-year Irish bond yields shoot above 8 percent on Monday — much higher than the cost of borrowing from the European Union’s emergency fund.

“A clear-cut solution (and therefore a reversal in spread widening) seems unlikely and as long as uncertainty prevails, spreads will remain under pressure,” said RBC Capital Markets strategist Matthew Strauss.

“That is good news for USD bulls, but somber news for risk bulls as an escalation of these concerns could easily spill over into broad-based risk aversion, adversely affecting commodity currencies such as AUD and CAD.”

So far, the Australian dollar has not been too badly affected, trading at $1.0123, having retreated from a 28-year peak around $1.0182.

Adding to the euro’s woes was data showing an unexpected fall in German industry output, although figures pointing to a surge in German exports indicated Europe’s largest economy will post solid if unspectacular third quarter growth later this week.

The euro was last at $1.3923, compared with $1.3916 late in New York on Monday. Against the Japanese currency, it bought 112.96 yen, having plumbed one-week lows at 112.59 yen overnight.

The euro also hit two-month lows versus the Aussie at A$1.3717 and was last at $1.3749.

The decline in the single currency helped the U.S. dollar gained broadly, with the dollar index (Read more about the global trade. ) (.DXY: ) climbing 0.6 percent to 77.018.

The dollar fetched 81.12 yen, little changed from late New York levels, but still within sight of its 1995 record low of 79.75 yen. It was capped at 82 yen, where offers from Japanese corporates were seen.

“Unless we have new trading factors, it’s hard to see the dollar/yen rising above that level,” said Daisuke Karakama, market economist at Mizuho Corporate Bank.

G20

ANZ’s Turley said the euro was in a mild corrective move lower, and unlikely to get worse, “unless these sovereign concerns blow out further.”

“The market is also going to be wary ahead of G20, but I think they’ll struggle to come up with any substantive plan,” he said.

The G20 summit starting later in the week has been pitched as a chance for leaders of the countries that account for 85 percent of world output to prevent a currency row escalating into a rush to protectionism that could imperil the global recovery. But there is little sign of consensus.

The summit has been overshadowed by disagreements over the U.S. Federal Reserve’s quantitative easing policy. The move has helped depress the dollar and raised fears it may cause a destabilizing flow of money into emerging economies.

(Additional reporting by Hideyuki Sano in TOKYO)

Euro zone debt jitters hit euro