FOREX-Euro rebounds, vote uncertainty hits sterling

* Euro up 1 pct at $1.2790 (EUR=: ) but trade volatile

* Euro on track for biggest weekly loss vs dlr since Oct ’08

* Sterling hits 1-yr low on uncertainty after UK vote

(Adds quote, updates prices)

By Neal Armstrong

LONDON, May 7 (BestGrowthStock) – The euro clawed back some of this
week’s heavy losses in volatile trade on Friday as investors
perceived selling to be overdone, though concerns the sovereign
debt crisis could spread still weighed on sentiment.

The euro recouped losses after falling to its lowest since
December 2001 against the yen on Thursday and hitting a 14-month
low against the dollar. But the rebound was seen limited.

“I see this as a corrective rebound from this week’s heavy
losses. I expect the bounce to be short-lived and remain
bearish,” said Ian Stannard, senior currency strategist at BNP
Paribas.

The euro rose as high as $1.2797 but was down about 4
percent on the week and on course for its worst weekly
performance since October 2008. By 1122 GMT, it was up 1 percent
on the day at $1.2790 (EUR=: ).

“It’s very difficult to see how markets can draw a line
under Greece, and they will keep coming back to the issue of
Greek solvency,” said Adam Cole, global head of FX strategy at
RBC Capital Markets.

Risk averse markets made for volatile trading in poor
liquidity. Euro/dollar vols were trading at year-to-date highs,
though still some way off the record levels seen in the wake of
the Lehman collapse in 2008.

One-month euro implied volatility (EUR1MO=ICAP: ) was at 16.00
compared to around 28.00 at the peak of the Lehman fallout. The
risk reversal moved further in favour of the downside, with
one-month 25-delta (EUR1MRR=ICAP: ) around 2.75 for euro puts.

Against the yen, the euro stood at 118.20 yen (EURJPY=R: ), up
3 percent after falling to 110.49 yen on EBS on Thursday.

Group of Seven finance ministers were to discuss the Greek
debt crisis in a call on Friday, although Japan’s finance
minister said he did not think they were considering joint
currency intervention. [ID:nN06238681] [nTOE646036]

“The contagion is spreading and creating panic in financial
markets,” said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFJ. “The news of the G7 call has soothed, but
it is doubtful that will last.”

HUNG PARLIAMENT

Sterling sank to a one-year low against the dollar and fell
sharply against the euro as almost complete results of a UK
general election showed there would be a so-called hung
parliament with no one party holding control. [GBP/]

The opposition Conservatives won most seats in parliament
but fell just short of an outright majority. [ID:nLDE64600H]

The pound pared losses after Liberal Democrat leader Nick
Clegg said the Conservatives should try to form the next
government. [nLDE6460YG]

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For a graphic of the election response in the gilt and
sterling markets, click

http://graphics.thomsonreuters.com/10/UK_ELMR0510.gif
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The dollar index (Read more about the global trade. ) (=USD: )(.DXY: ) was at 84.50, slipping from
Thursday’s one-year high of 85.27. The dollar rose above 92.00
yen (JPY=: ), after hitting 87.95 yen on Thursday when it shed
nearly 4 percent.

The dollar could get a boost if the U.S. employment report
later in the day shows 200,000 jobs were added in April, as
forecast, up from 162,000 in March. [ID:nN03205134].

Stock Market Analysis

(Additional reporting by Tamawa Desai, editing by Nigel
Stephenson)

FOREX-Euro rebounds, vote uncertainty hits sterling