TOKYO: The euro languished near one-week lows versus the dollar in Asia on Thursday, facing limited recovery prospects as worries about Europe's sovereign debt problems outweighed a widely expected interest rate hike by the European Central Bank.
Concern that Greece's debt crisis would spread to other highly indebted peripheral euro zone countries flared up this week after Moody's slashed its rating for Portugal to junk status.
"Now with euro peripheral contagion back in rage, the ECB meeting is almost relegated to the status of a sideshow ... the potential for Mr Trichet to do or say anything that will immediately propel the euro significantly higher is considerably diminished," BNP Paribas analysts wrote in a note.
In fact, if anything, a softening in ECB President Jean-Claude Trichet's hawkish stance, or even a lack of more hawkish comments, could further weigh on the euro, traders said.
"If Trichet's comments just underline expectations of gradual tightening in the future, the market may be disappointed and sell the euro, said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank.
The euro was last at $1.4335, having plumbed a trough around $1.4283 overnight. Support is seen at the session low, a level representing a 61.8 percent retracement of a June 27 to July 4 rally.
A break of that could see the common currency return to $1.4213, the 76.4 percent level. A breach of its upward sloping trendline support since late May, now at $1.4175, could add to bearish sentiment.
Still, analysts don't expect the euro to fall too sharply in the months ahead, underpinned by higher interest rates, a Reuters poll showed.
Analysts in the survey see the euro at $1.3900 in a year's time. See for the latest Reuters forex poll.
Against the safe-haven Swiss franc , the euro reached a low around 1.1958 francs before recovering a bit to last stand at 1.2020. It was, however, not far off a record trough near 1.1800 set recently.
The dollar benefited from the euro's woes, rising against a basket of major currencies. The dollar index climbed near 75.000, pulling further away from a one-month low of 74.133 set earlier in the week.
Against the yen, it was at 80.83 , staying in a well-worn range roughly between 79.80 and 81.30.
Commodity currencies fared surprisingly well in the face of renewed pressure on the euro and China's interest rate hike.
TIGHTENING CYCLE
China raised rates for the third time this year, but analysts suggested it was close to, or even at the end, of its tightening cycle. There was also some optimism that it would not be threatened by a hard landing.
"While the euro is suffering on the back of such negative news flow, unlike the 2010 episodes of euro zone debt woes, the risk aversion impact appears to be getting increasingly narrow," noted Frank Peter, strategist at Societe Generale.
"Interestingly, even with the announcement of another China policy rate hike, USD, JPY and CHF gains against the commodity bloc currencies were marginal or non-existent," he added.
Indeed, the Australian dollar recovered from a dip to one-week lows around $1.0655 to last stand near $1.0700, while the New Zealand currency at $0.8273, was not far off a 30-year peak of $0.8332 set earlier this week.
The Aussie extended its gains further after data showed Australian employment rose by more than expected in June.
Copyright Reuters, 2011
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