Thursday, 29 November 2012 03:09
NEW YORK: The euro fell broadly on Wednesday as risk appetite waned on worries about how a deal on Greek debt will be implemented and persistent concerns about whether US lawmakers can agree on a deal to prevent potential tax increases and spending cuts.
The yen, seen as a safe haven during times of economic uncertainty, was the main beneficiary of investor flows. It also gained support from investors paring back aggressive expectations of monetary easing by the Bank of Japan in coming months.
"The market remains cautious on the single currency as traders do not seem convinced that the agreement yesterday on Greek aid is all it is proposed to be," said Matthew Lifson, senior analyst and trader at Cambridge Mercantile Group in Princeton, New Jersey.
"There are still major concerns that the Greek government will not be able to meet the obligations set forth at the latest finance minister's meeting."
The euro fell 0.2 percent to $1.2925. Traders cited bids at $1.2870 and $1.2850, which could limit losses in the near term, with some attributing the euro's weakness to talk of dollar demand for month-end portfolio adjustments.
But there are offers to sell the euro at $1.2940, possibly limiting its gains.
The euro also fell to a 2-1/2 month low against the Swiss franc, another safe haven, at 1.2024. It was last at 1.2032, down slightly on the day.
The single currency has fallen from a one-month high against the dollar of $1.3010, struck after international lenders agreed a plan to cut Greek debt earlier this week, allowing the country to avoid a chaotic default.
But a lack of detail and growing scepticism over how Athens will implement the reforms needed to reach the new targets made investors wary of adding euros to their portfolios.
The deal is still subject to approval from German lawmakers, which some say could weigh on the euro, although it is widely expected to be approved on Friday.
With the Greek deal out of the way, investors focused on the so-called US fiscal cliff, a combination of automatic tax increases and spending cuts due to kick in at the beginning of the year that could tip the world's biggest economy into recession and depress the global outlook.
The US Congress pushed toward compromise on Tuesday but agreement with the administration still appeared elusive.
"If (the US talks) go well, the relief on peripheral assets may have legs, including the euro. If it goes badly, even France may get questioned by an uncertain market, and we would expect the euro to suffer," Barclays strategists said in a note.
However, comments by US House Speaker John Boehner on Wednesday voicing optimism about a fiscal deal lifted some of the riskier currencies. The euro traded above $1.29, while the dollar trimmed losses against the yen after Boehner's remarks.
The dollar index erased gains to turn flat on the day as risk aversion eased on Boehner's statement. It was last at 80.435.
"The noise around the fiscal cliff continues to drive the market, but overall we are in a consolidation where there is no real direction," said Sebastien Galy, currency strategist at Societe Generale in London.
Investors will continue to buy on dips in riskier currencies such as the euro and sell on rallies until we get a clearer US fiscal picture, Galy added.
YEN REGAINS GROUND
The yen rose as investors unwound long dollar and euro positions built in recent weeks on expectations a fresh election on Dec. 16 will see a new Prime Minister elected. The new Japanese leader is widely expected to put pressure on the Bank of Japan to further ease monetary policy.
The Japanese currency had lost about 4 percent against the dollar over the past two weeks as investors started to price in aggressive monetary policy action after the Japanese election.
Shinzo Abe, who is likely to emerge as premier, has called for more aggressive easing, but some investors have begun to question how much impact he will have on monetary policy.
"While most traders believe there will be an eventual agreement on 'fiscal cliff' negotiations, they are hedging their bets and this will keep pressure on the dollar against the yen in the near term," said Cambridge's Lifson.
The euro also fell against the yen, dropping 0.4 percent on the day to 105.86 yen, moving away from a seven-month high of 107.13 yen set on Monday.
Copyright Reuters, 2012