Tuesday May 26, 2009 - 10:48:31 GMT
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Reuters - www.reuters.com
FOREX NEWS-German bank doubts push euro below $1.39
* Dollar recovers from last week's 5-month low
* Concern over German banking sector hits euro
* Focus turns to U.S. Treasury auctions this week
(Updates throughout, adds quotes and comment)
By Jamie McGeever
LONDON, May 26 (Reuters) - The dollar strengthened on
Tuesday after a media report questioning the health of the
German banking system prompted traders to cash in on the euro's
recent rally that culminated in a five-month high last week.
The report in Britain's Daily Telegraph was prominent among
reasons given for the euro's slide of almost one percent to
below $1.39, another being the relatively disappointing euro
zone economic data in recent days.
North Korea's missile test on Tuesday also encouraged
investors to pare back exposure built up in recent weeks across
various asset classes, which meant buying back dollars and
government bonds, and selling euros, stocks and commodities.
"There is some profit taking here ... the euro/dollar rally
of last week was a bit excessive," said David Powell, G10
currency strategist at Bank of America-Merrill Lynch in London.
Powell said the story on German banks didn't contain any new
information, but was enough to encourage traders to book profit
from the euro's rise above $1.40 last week.
"It's certainly adding to the negative euro outlook
(today)," Powell said.
The Daily Telegraph reported that Germany's financial
regulator BaFin had warned that toxic debt of the country's
banks would blow up "like a grenade" unless they took advantage
of government bad-bank plans to prepare for the next phase of
The report was not new, however, as the regulator warned
last week that German banks have bad assets of around 200
billion euros ($280 billion). [ID:nWEA3360]
At 1000 GMT the euro was down 0.8 percent on the day at
$1.3890 <EUR=>. On Friday it rose as high as $1.4051 on trading
platform EBS, its highest since early January, marking a rise of
some 8 percent from $1.30 in the past month.
The dollar index .DXY, a gauge of the greenback's
performance against six other major currencies, was up 0.8
percent on the day at 80.62.
On Friday it fell to a 2009 low of 79.805, a day after an
outlook downgrade to Britain's AAA sovereign debt rating
prompted speculation the U.S. government debt may lose its
CENTRAL BANK FOCUS
European markets were open on Monday, however, and
German-based Ifo think tank's business climate index fell short
of market expectations, suggesting that any recovery in the euro
zone's biggest economy will take more time. [ID:nBEB002393]
Figures on Tuesday confirmed that Germany's economy shrank
in the first quarter at its fastest pace since reunification in
1990, while euro zone industrial new orders fell unexpectedly in
March. [ID:nLQ656305] [ID:nLQ503694]
The euro was down 0.8 percent on the day at 131.85 yen
<EURJPY=>, while the dollar was up 0.2 percent against the
Japanese currency at 95.00 yen <JPY=>.
A greater test of dollar sentiment comes later in the week
with the U.S. Treasury's note auctions totalling $101 billion.
The government will sell two-year notes today, five-year notes
on Wednesday and seven-year paper on Thursday.
"The main risk .... is whether sovereign bidders finally
lose appetite and shift their focus," said UBS in a note on
"As such, a low indirect bidder participation rate during
this week's auctions may also damage the dollar, but we also
note that it is not in the interests of the world's major
reserve holders to act disruptively at this stage," it said.
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