Euro falls vs dollar with no progress on Greece

NEW YORK: The euro fell on Wednesday weighed by a lack of concrete details to deal with the region's debt crisis and worries over a Greek default even after a pledge by policymakers to strengthen European banks.

A downgrade of Italian sovereign debt by ratings agency Moody's highlighted the funding difficulties facing the euro zone's third biggest economy, while France and Belgium were forced to help Dexia SA in the first state rescue of a European bank in the crisis.

The euro rallied to little changed against the dollar after better-than-expected US private-sector jobs data boosted risk appetite but that advance proved fleeting.

"Slightly better employment data would signal risk preference but a lack of progress in any meaningful way on resolving Greece and the debt crisis in general is keeping risk at bay," said John McCarthy, director of foreign exchange at ING Capital Markets in New York. "A downgrade of Italy has broght everyone back to reality."

The euro, trading at $1.33131 on electronic trading platform EBS, was down 0.2 percent on the day at but up from Wednesday's session low of $1.3260 and the nine-month low of $1.3145 touched on Tuesday. Analysts said there was little to lift it further.

They said the euro may bounce around its current range as investors were wary of placing big bets in either direction given uncertainty surrounding a policy announcement from the European Central Bank on Thursday.

Analysts said the single currency could fall further if investors sense European policymakers are dragging their feet on plans to leverage the EFSF.

"You really need a credible bank recapitalisation plan, expansion of EFSF firepower and structural reform in Italy to ease pressure on the euro," said Kiran Kowshik, currency strategist at BNP Paribas.

Any sign that Germany, which is taking the brunt of bailing out weak countries, was becoming more resistant to working toward a lasting, coordinated solution to the debt crisis would also hurt the euro.

"There's just news of discussions about a possible bank recapitalisations, there's no details yet," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.

"There's a high risk of a further sell-off if we don't get details on this soon."

European Economic and Monetary Affairs Commissioner Olli Rehn told the Financial Times on Tuesday there was a shared view that European banks' capital positions must be reinforced, but investors remain sceptical of ministers' will to act commensurately to the risks emerging.

Positive sentiment to the euro zone did increase after the IMF hinted it could invest in Spanish and Italian debt alongside the EFSF bailout fund but for now investors remain focused on the negative.

ECB RISKS

Some analysts said a brief corrective rally in the euro to around $1.34 could not be ruled out after the currency bounced on Tuesday from levels which, had they been breached, would have signalled an acceleration of its decline.

Key support is seen at $1.3140 -- a 76.4 percent retracement of a rise from its August 2010 low of $1.2583 to this year's high above $1.49.

Many in the market speculate it faces downward pressure if the ECB on Thursday opens the door to more monetary easing to support the economy during the debt turmoil.

"While there could be some initial euro rebound if the ECB leaves rates unchanged Thursday, gains are expected to be short-lived," Morgan Stanley analysts said in a note.

"Even if the ECB does not cut this week, (ECB President) Trichet is likely to step up the dovish rhetoric, clearing the way for action in November."

US non-farm payrolls due on Friday provide another risk event for investors, as signs the job sector is continuing to suffer may raise the argument for more US monetary easing to boost the economy.

Federal Reserve President Ben Bernanke on Tuesday said the economy was "close to faltering", and that the central bank was prepared to take further steps to help.

The dollar was little changed against the yen at 76.771 yen on EBS.

Copyright Reuters, 2011