Wednesday April 22, 2009 - 10:28:12 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro/dollar hits 1-month low on shares, ECB view
* Euro/dollar hits one-month low $1.2885, then trims losses
* Risk aversion boosts dollar, yen
* Euro weighed on view that ECB may not cut rates much more
(Adds comment, details, updates prices)
By Naomi Tajitsu
LONDON, April 22 (Reuters) - The euro hit a one-month low
against the dollar on Wednesday as struggling shares prompted
investors to dump currencies considered to be high risk, while
concerns about the euro zone economy also stung the single
The euro slumped after an early fall in European shares
underlined ongoing risk aversion. It later trimmed losses versus
the dollar as stocks recovered and the euro gained against a
broadly weaker sterling following weak UK economic data.
Still, the euro stayed under selling pressure, while the yen
gained broadly, given mixed U.S. corporate earnings reports that
have left investors uncertain about the state of the global
economy and kept risk aversion high.
Some analysts say the euro is weighed on the view that the
European Central Bank may not cut interest rates much further,
which may delay the euro zone's recovery from the recession.
"The euro has been weakening due to the ECB's tardiness and
reluctance to cut rates," said Stephen Koukoulas, currency
strategist at TD Securities in London, adding that was seen as a
negative for the broader economy.
"In terms of which major country will come out of the
recession first, the euro zone is at the bottom of the list and
that could weigh on the euro more."
The ECB is seen cutting interest rates to 1.0 percent from
1.25 percent in May but it is unclear whether it will follow the
Federal Reserve and other central banks and create money via
other means such as buying corporate or sovereign debt.
In an editorial published in the Wall Street Journal on
Wednesday, ECB Governing Council member Juergen Stark said that
the central bank is weighing up possible non-standard measures
to help the economy, while keeping in mind the role the banking
system plays in the region. [ID:nLM584636]
Axel Weber, another Governing Council member, told the
Financial Times in an interview that the ECB had marginal room
for more rate cuts and the euro zone had very limited scope for
buying government debt in secondary markets. [ID:nN21346670]
The euro <EUR=> fell as low as $1.2885 on electronic trading
platform EBS, dragged lower after European shares fell in early
trade. By 0941 GMT, the single currency had trimmed losses to
trade largely unchanged on the day at $1.2935.
European shares .FTEU3 recovered from their early slide to
trade 0.3 percent higher on the day.
Also helping the euro/dollar was the single currency's 0.7
percent rise versus sterling <EURGBP=R>, which fell broadly
after a weak reading of UK employment and public borrowing.
Sterling <GBP=D4> 0.6 percent lower at $1.4582.
With few major events or data due from the euro zone on
Wednesday, analysts said the market would focus on the UK budget
at 1130 GMT, which many anticipate will show a grim outlook for
Britain's economy and plans to crank up public borrowing.
Against the yen, the euro <EURJPY=> fell 0.8 percent to
126.77 yen. The yen gained broadly, pushing the dollar <JPY=>
0.7 percent lower to 97.98 yen.
Currency markets have been volatile in the past week, jerked
around by moves in share markets. However, a broad sense of risk
aversion has boosted the dollar and the yen, which are often
considered safe bets in times of uncertainty.
The high-yielding Australian <AUD=D4> and New Zealand
dollars <NZD=D4> fell more than 1 percent against the U.S.
dollar, while tumbling more than 1.5 percent against the yen
"Anyone still betting on a recovery in risk appetite will be
disappointed," said Michael Klawitter, senior currency
strategist at Dresdner Kleinwort in Frankfurt.
The market is awaiting the outcome of the U.S. authorities'
stress tests on banks. U.S. officials are expected to release
details of the underlying assumptions of the tests on Friday,
but actual results are not expected until May 4.
Treasury Secretary Timothy Geithner said most U.S. banks had
enough capital to keep lending, but a pile of bad debts was
fostering doubts about their health and slowing a recovery.
However, an International Monetary Fund report warned that
global write-downs by banks and other financial institutions
could reach $4.1 trillion as institutions seek to clean up their
balance sheets. [ID:nN21456999]
(Reporting by Naomi Tajitsu, editing by xxx)
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