FOREX-Euro drops sharply vs dollar as debt fears dominate

* Euro down vs dlr, 1st time in 4 days on euro zone woes

* Fed Chairman Bernanke comments fails to rattle dollar

* Euro zone finance ministers to meet later on Monday
(Updates prices, adds quote, details)

By Julie Haviv

NEW YORK, Dec 6 (BestGrowthStock) – The euro fell (Read more about the trembling euro. ) sharply against
the dollar on Monday, marking its first decline in four
sessions, as fears about euro zone peripheral government debt
moved to the forefront, trumping dovish comments made by U.S.
Federal Reserve Chairman Ben Bernanke.

The weak performance of the euro comes ahead of a meeting
of euro zone finance ministers, who are under pressure to boost
the size of a rescue fund to stop a debt crisis from

The euro (EUR=: ) was down 1.14 percent at $1.3261, according
to Reuters data. Traders reported an options expiry on Monday
at $1.3250.

IMF chief Dominique Strauss-Kahn will present a report, a
copy of which was obtained by Reuters, to euro zone finance
ministers meeting in Brussels, saying more action is needed
from member states. [ID:nLDE6B40CZ]

This encouraged renewed selling of the euro after a rebound
late last week took it back above $1.34, with traders citing
selling by real money accounts and sovereign names.

Euro/dollar “has scope to move down further, with political
developments and commitment from euro zone policymakers likely
to be the focus,” said Paul Mackel, director of currency
strategy at HSBC.

The IMF report will say the euro zone should increase the
size of its 750 billion euro rescue fund and the European
Central Bank should boost bond buying markedly.

With the euro resuming its decline, the dollar index (Read more about the global trade. ) (.DXY: )
was up 0.5 percent at 79.814, close to its 100-day moving
average of 80.04.


The dollar also bounced on a bout of short covering as
investors shrugged off comments from U.S. Federal Reserve
Chairman Ben Bernanke that quantitative easing could be bigger
than estimated. [ID:nN05271909]

Fed Chairman Bernanke appeared in an interview on CBS-TV’s
“60 minutes” late Sunday and communicated his view that it is
possible that U.S. monetary policymakers increase the
additional $600 billion in asset purchases announced at the
last Fed meeting.

More asset purchases would be negative for the dollar, but
his comments failed to hurt the greenback.

The weakness in the European currency complex is likely the
primary reason for the dollar’s support, nullifying the impact
of Friday’s nonfarm data which punished yields and sent the
trade-weighted dollar down nearly 1 percent. This was its worst
daily loss in over a month, according to Camilla Sutton, chief
currency strategist at Scotia Capital in Toronto.

“Reports that both President Trichet and the IMF have
suggested that the size of the European bailout fund needs to
be larger has removed the calm that had entered European
markets late last week,” she wrote. “The combination of the
Irish budget vote, today’s Eurogroup meeting and several ECB
council member press conferences leaves a lot of room for
headline risk.”

Analysts and traders said Bernanke’s comments on QE were
not too bearish given Friday’s below-forecast jobs data.

The euro briefly rose to $1.3380 after European clearing
house LCH.Clearnet reduced the margin requirement on Irish
government bonds to 30 percent from 45 percent of net positions
of its margin rate. [ID:nLDE6B10EI]

Euro/dollar risk reversals showed the premium demanded to
buy euro puts over calls rising again as the recovery in the
spot euro above $1.34 looked to have run its course. The
25-delta 1-month risk reversal (EUR1MRR=ICAP: ) traded above 2.0
on Monday after falling to around 1.85 on Friday.

Latest data from the Commodity and Futures Trading
Commission showed currency speculators trimmed bets against the
U.S. dollar for a fourth straight week. [IMM/FX].

The dollar was up 0.25 percent to 82.83 yen (JPY=: ), below
its session high of 82.98, but climbing off Friday’s three-week
low of 82.52 yen and keeping well above the Ichimoku ‘cloud’
bottom around 81.70 yen.

(Additional reporting by Anirban Nag in London)
(Editing by Theodore d’Afflisio)

FOREX-Euro drops sharply vs dollar as debt fears dominate