LONDON: The euro stepped back from its sell-off on Thursday, having hit a 11-month low against the dollar the previous day, with most investors looking to initiate fresh bearish positions on every bounce given lingering worries about the debt crisis.
It fell against the Swiss franc after the Swiss National Bank decided to keep the floor on the euro/Swiss franc exchange rate unchanged at 1.20 francs. That disappointed some investors who had built long euro positions on expectations that the SNB will lift the floor to fight deflation in Switzerland.
The common currency fell to 1.2255 francs from 1.2340 francs beforehand, while the dollar fell to a session low of 0.94042 francs from 0.9469. The dollar had risen to a 10-month high of 0.9549 on EBS earlier in the day.
The euro was up 0.15 percent at $1.3000 after having fallen to as low as $1.2945 on Wednesday, the lowest level since Jan. 11, on trading platform EBS. The next major support is found at the year's low, $1.2860 on Jan. 10.
The euro rose 0.3 percent against the yen to 101.53 yen. On Wednesday, the euro had dipped to as low as 101.10 yen, nearing a 10-year low of 100.77 yen hit in October.
The single currency has lost around 2.8 percent against the dollar this week after last Friday's European Union summit, seen as critical to reach a solution to rein in the debt crisis, failed to restore investor confidence.
"The euro has come down very sharply in a short while, so it is not a surprise that we are seeing a bounce here as some positions are getting squeezed out," said Paul Robson, currency strategist at RBS Global Banking.
"Overall, the outlook for the euro remains dark, with the unravelling of the treaty last week, refusal to lend to the IMF and the overall downside risks to global growth. We expect the euro to fall to $1.26 by the end of Q1 next year."
The euro's weakness, plus falls in commodities such as gold and persistent strains in dollar funding markets, have bolstered the US dollar this week and has helped lift the dollar index close to its 2011 high.
The dollar index was last down 0.2 percent at 80.396, as investors booked profits on their long positions. With the European economy headed towards a recession at a time when the US data is showing signs of some improvement, analysts are expecting euro to stay under pressure into the year end.
SPANISH AUCTION
Currency investors will eye a Spanish bond auction for direction. Spain is set to see yields fall at a sale of up to 3.5 billion euros of 2016, 2020 and 2021 bonds.
There was some relief for peripheral issuers on Wednesday in the wake of a successful Italian auction, despite the country having to pay an eye-watering 6.47 percent to borrow for five-years.
"Spain faces far less funding pressures than Italy early next year and if the borrowings costs are lower, it will not be a negative for the euro," said Chris Turner, head of FX strategy at ING.
But any respite for the euro may prove fleeting. The euro area faces the next potential crunch point in mid-January when Italy has to start issuing tens of billions of euros in bonds towards a 2012 total of 340 billion euros needed to roll over maturing debt.
The dollar held steady against the yen at 78.00 yen, having pulled away from last week's low near 77.13 yen over the past few days. Traders in Tokyo said the dollar was supported against the yen on Thursday due to dollar buying by Japanese importers.
The Australian dollar received a tiny fillip immediately after the HSBC flash China PMI came in at 49, an improvement from the 47.7 final reading in November.
But that move was short-lived, and the Australian dollar later came back under pressure. It was flat on the day $0.9918.
Comments
Comments are closed.