The euro edged back towards a two-year low against the dollar on Monday, failing to hold on to the previous session's gains as concerns over the euro zone and sluggish global growth overcame hopes for more fiscal stimulus in the wake of a grim US jobs report.
The jobs data suggested the euro zone debacle, which pulled the single currency down by about 6 percent last month, is taking its toll on the world's largest economy, stoking fears of a world-wide slowdown compounded by gloomy manufacturing data from China and Europe.
The euro slid 0.3 percent to $1.2400, moving closer to $1.2288, its lowest level since July 2010 hit on Friday. London markets were closed on Monday, leaving many players stuck on the sidelines and boosting volatility, investors said. More light on potential monetary stimulus is expected on Thursday, when the Fed chief Ben Bernanke testifies before a congressional committee about the US economy. Until then, the euro zone is poised to dominate the agenda, traders said.
"The simple logic that you sell the dollar and buy the euro on hopes for more easing to many people just doesn't make sense," said Masahide Sato, vice president at Mizuho Corporate Bank's forex division in Tokyo. The euro's sell-off intensified after Spain's borrowing costs spiked on jitters it may need to issue more bonds to bolster ailing banks, putting more stress on markets already anxious that Greece may exit the eurozone.
Spanish Prime Minister Mariano Rajoy called on Saturday for the establishment of a central authority that would oversee and co-ordinate fiscal policy in the euro zone. Germany also wants a big leap forward in euro integration, but investors are doubtful whether moves towards closer integration will be able to restore market confidence. For now, market players said there were no reasons to actively buy the single currency, but warned there could be bouts of short-covering. Short positions in the euro surged to 195,361 contracts - the highest on record, the Commodity Futures Trading Commission said.
Meanwhile, bets in favour of the US dollar rose to their highest since at least mid-2008. But the single currency edged up 0.2 percent against the yen to 96.95 yen, staying above an 11-1/2-year low of 95.59 yen struck on Friday.
With the safe-haven yen's broad surge last week on the back of heightened risk aversion, including its rise to a 3-1/2-month high versus the dollar, traders have grown jittery about the potential for Japanese yen-selling intervention. The dollar inched up 0.2 percent to 78.17 yen but was still not far off Friday's trough of 77.65, the greenback's lowest since mid-February.
Underscoring the skittishness in markets, the dollar briefly jumped to as high as 78.50 yen after the benchmark Nikkei opened down 1.9 percent, with traders citing buying by a Japanese and a foreign bank. The risk-sensitive Australian dollar fell 0.5 percent to $0.9645.
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