NEW YORK: The euro slid on Thursday as turmoil deepened in Greece and efforts to resolve the country's debt crisis remained elusive, though the euro pared losses after hitting a record low against the Swiss franc and a three-week low against the dollar.
The selling in the euro put it on course to drop below $1.40, analysts said, as yields on weaker euro zone bonds surged, expanding their spreads against German Bunds to their widest ever.
The euro trimmed some of its losses against the dollar after a report showed factory activity in the US Mid-Atlantic region unexpectedly shrank in June, the second straight day that data showed signs of weakness in the manufacturing sector.
"It is certainly feeling like a durable downturn in the US, but the reality is the US economy is in a more stable position than its rivals," said Karl Schamotta, senior market strategist at Western Union Business Solutions, Victoria, British Columbia. "The situation in Europe is under-appreciated, and the US is set to outperform regardless of how negative things get.
The euro dropped to a lifetime low against the Swiss franc at 1.1946 francs on electronic trading platform EBS, before climbing back to 1.20363, down 0.5 percent on the day.
Seen as a safe-haven currency, the franc brushed off statements by the Swiss National Bank expressing concern about its gains, as the bank gave no sign of action that would stem the currency's upside.
Against the dollar, the euro fell to a session low of $1.4073 on EBS, its lowest since late May. It last traded at $1.41539 down 0.2 percent.
The single currency has lost 3.6 pct since its June 7 peak.
Violent protests in Athens against government austerity highlighted the political obstacles to a second bailout, with Prime Minister George Papandreou forced to reshuffle his cabinet to salvage his government after resignations by ruling party lawmakers.
Thursday's decline in the euro was a break below support at $1.41531 on EBS, its 100-day moving average. A close below that level would offer a technical indication that the euro is vulnerable to more losses, and analysts said the single currency was poised for a move down to May's trough around $1.3970.
Others saw more upside to the euro given US data.
"The sugar high is wearing off and the US economy is finding itself back where it began the QE2 cycle, with the only tool left in the toolbox being a weaker USD in order to inflate the economy out of this depression," said Douglas C. Borthwick, managing director at Faros Trading, LLC in Stamford, Connecticut.
BANKING STRAINS?
The yen also rose due to its perceived safe-haven status, pushing the dollar down 0.4 percent to 80.67 yen and driving the euro to a one-month low before it recovered to 114.20 yen, still down 0.5 percent.
Investors are increasingly unsure whether an agreement on a Greek bailout plan will be reached in the near term. EU and banking sources told Reuters, Germany wants the deadline for a second rescue deal to be pushed back to September, highlighting the hurdles toward reaching a consensus.
Concerns about possible strains in the banking sector due to Greece's debt problems are raising speculation that European banks could face difficulties in dollar funding.
Some fund managers said they had recently pared their risky positions as the Greek debt situation deteriorates while economic data suggests the global economy may be struggling.
"We've been taking risk off across the board," said Thanos Papasavvas, head of FX management at Investec in London, adding that he had been "lightly" selling euros and sterling, while sitting tight on his emerging currency positions.
Copyright Reuters, 2011
Comments
Comments are closed.