Euro struggles vs dollar, stung by bailout bickering

LONDON: The euro fell broadly on Tuesday after it broke below a key technical level against the dollar and as it continued to be affected by bickering between euro zone countries about the terms of a Greek bailout deal.

Investors brushed off gains in European shares, which would tend to boost the euro. Market participants, including London traders returning from a holiday on Monday, focused instead on divisions among euro zone countries on how to solve the bloc's debt problems.

The market was also awaiting minutes, due later in the day, from the Federal Reserve's policy meeting earlier this month. Any suggestion that more stimulus may be needed to boost the fragile US recovery is expected to spur selling in the dollar.

The euro fell 0.7 percent on the day to a session low around $1.4400, retreating from a two-month high of $1.4550 hit on Monday, despite a 0.7 percent rise in European shares.

Against the Swiss franc, the single currency slipped 0.2 percent to 1.1818 francs, retreating from a seven-week high around 1.1970 hit the previous day.

Reuters on Monday reported detailed proposals put forward by Finland regarding its demand for collateral in return for providing more aid to Greece.

Helsinki's demands for collateral have sparked requests from countries including Austria, the Netherlands, Slovenia and Slovakia for similar treatment, and could jeopardise euro zone attempts to save Athens from default.

"We're getting a bit of noise about what the euro zone is up to, what it's not up to and what it should be up to," said Geoffrey Yu, currency strategist at UBS.

"It's getting so convoluted, all the demands from smaller states like Finland, Austria, Slovakia ... If this is going to be the case for a while to come, people are going to be concerned that the crisis is going to drag on."

DOLLAR RISKS

The euro fell sharply from a session high of $1.4533. Losses accelerated after it pushed below a technical pivot point around $1.4470, which triggered stop-loss selling in the single currency.

"People going long on euro/dollar are very quick to liquidate, and to take profit on those positions, so it will be tough for the euro to rise beyond $1.4570," Niels Christensen, currency strategist at Nordea in Copenhagen, said, referring to a high hit in early July.

Market participants cited euro selling against the dollar by eastern European and US names.

The dollar rose 0.4 percent against a currency basket, helped by investors seeking a safe haven for their cash, although many in the market see a growing likelihood of another bout of quantitative easing (QE) by the US central bank, which would weaken the dollar.

QE would flood the financial system with more dollars and probably boost stocks, higher yielding currencies and the euro.

Fed chief Ben Bernanke acknowledged slower-than-hoped-for growth in the US economy in a speech late last week, but did not make clear the central bank would step in, saying only it would hold a longer policy meeting this month to consider its options.

Data on Monday showing a rise in US consumer spending suggested the economy is not falling back into recession, although the risk remains that the economy will continue to struggle but not enough to push the Fed into action.

The New Zealand dollar rallied to its strongest in nearly a month after data showing a 13 percent rise in New Zealand home building approvals in July added to signs the economy is recovering.

But other commodity-related currencies suffered, including the Australian dollar , which retreated from the day's high to trade 0.2 percent lower on the day.

The US dollar slipped 0.1 percent to 76.80 yen, but stayed above an all-time low around 75.94 set earlier in the month, as market players remained wary of possible yen-selling intervention by Japanese authorities.

Finance Minister Yoshihiko Noda, who oversaw Japan's massive intervention earlier this month, was voted in as prime minister on Tuesday, suggesting no change in Japan's currency policy.

The dollar slipped 0.3 percent to 0.8130 Swiss francs as the franc clawed back after selling off on news late last week that UBS was considering charging a fee to deter clients from hoarding the safe-haven currency.

The franc's gains were capped though by expectations the Swiss central bank may take more measures to weaken the currency.

Copyright Reuters, 2011