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Wednesday April 22, 2009 - 10:28:12 GMT
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FOREX NEWS-Euro/dollar hits 1-month low on shares, ECB view

Wed Apr 22, 2009 6:21am EDT

* 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 European currency.

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.

YEN CLIMBS

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 <AUDJPY=R> <NZDJPY=R>.

"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. [ID:nN21535633]

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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