Monday May 25, 2009 - 10:17:05 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro slips on German Ifo in thin holiday trade
* Euro hits day's low after Ifo falls short of expectations
* Yen stays on back foot after N.Korea nuclear test reports
* Market liquidity thin due to holidays in UK, U.S.
(Releads, updates throughout; previous TOKYO)
By Naomi Tajitsu
LONDON, May 25 (Reuters) - The euro slipped on Monday, stung
after a gauge of German corporate sentiment fell short of market
expectations, suggesting that any recovery in the euro zone'
biggest economy would take more time.
The Munich-based Ifo think tank's business climate index
rose to 84.2 in May from 83.7 in April. Despite the rise, the
reading was lower than expectations for an 85.0 reading, while
current conditions slumped to their lowest level since Germany's
reunification in 1990 [ID:nBEB002393].
The figures put some selling pressure on the euro, sending
it to the day's low against the dollar during thin European
trade due to market holidays in the UK and the United States.
Losses in the euro were limited, however, as many in the
market continue to focus on the dollar's short-term decline on
the back of fiscal concerns given recent speculation that the
United States may be vulnerable to a credit ratings adjustment.
Analysts said that the euro's slide on Monday suggested that
traders may be getting less optimistic that the global economy
is beginning to recovery significantly. This view had improved
risk demand in past weeks and propelled the single European
currency to its highest level in nearly five months last week.
"The Ifo was disappointing because it confirms that what's
been happening in the financial markets so far is very much been
based on hope, and not hard facts," said Michael Klawitter,
senior currency strategist at Dresdner Kleinwort in Frankfurt.
The business climate index rose for the second consecutive
month, which Klawitter noted was an improvement, but he added
that bigger rises in expectations in past months while current
conditions deteriorate was evidence that people may be more
confident of a recovery than perhaps they should be.
"Overall, the bottom (of the downturn) may have been
reached, but it remains questionable whether there is any basis
for optimism that will move into a normal recovery phase," he
YEN SLIPS ON N.KOREA REPORTS
By 0945 GMT, the euro <EUR=> traded at $1.3975, down 0.1
percent on the day and hovering near a session low of $1.3959.
The pair pulled away from $1.4051 hit late last week for the
first time since early January.
Despite the euro's slide on Monday, some in the market said
it was too early to determine whether the rally in the single
currency had petered out, given the lack of liquidity on Monday
due to market holidays.
The dollar inched up 0.25 percent against a basket of
currencies .DXY but held near a five-month low hit last week
when concern that U.S. government debt may lose its AAA rating
prompted investors to sell the world's reserve currency.
The dollar <JPY=> rose 0.3 percent to 95.08 yen, trading
near the day's high around 95.20 yen hit earlier in the day
after the yen came under selling pressure on news that North
Korea conducted a nuclear test and a report that it had fired a
short-range missile [ID:nSEO141656].
European market participants said that the news was having
limited impact on the local market. Traders in Tokyo had said
that yen selling had been exaggerated by after some in the
market used the news to unwind long yen positions.
The yen stayed on the back foot against other currencies,
prodding the euro <EURJPY=R> 0.2 percent higher to 132.91 yen,
while sterling <GBPJPY=R> rose slightly.
The UK currency <GBP=D4> slipped 0.3 percent to $1.5882,
trading just under a 6 1/2-month high of $1.5947 touched on
The pound has recovered from some selling seen last week
after Standard & Poor's said the outlook for Britain's triple-A
credit rating was "negative" and no longer "stable". Focus now
has shifted to other countries which may be at risk of a similar
adjustment, with some pointing out that the U.S. fiscal position
is much weaker than Britain's.
Given ongoing concerns about ballooning U.S. debt levels,
markets awaited the U.S. Treasury's two-, five- and seven-year
debt auctions this week totalling $101 billion -- an important
test of investor appetite for dollars and dollar assets.
"More Treasury auctions will be held this week and their
continued success will be critical for the dollar outlook as the
results will also reveal the situation with external demand,"
UBS analysts said in a research note.
They added that if the indirect bidders show material signs
of falling demand, it would suggest that sovereign bidders may
be starting to lose patience with dollar, and U.S. current
monetary and fiscal policies by association.
Market participants said that selling of the dollar and U.S.
assets last week was a reflection of growing concerns about the
U.S. government's heavy indebtedness as it grapples with the
worst financial crisis in generations. [ID:nN21394511]
(Reporting by Naomi Tajitsu; editing by Andy Bruce)
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