Euro falls to 11-mth low versus yen

Reuters ^ | June 7, 2005 | Brent Kininmont

[RWR8189]

TOKYO (Reuters) - The euro hit an 11-month low against the yen on Tuesday, hurt by a bleak economic outlook for the euro zone and remarks by the European Central Bank chief which the market saw as a hint of interest rate cuts.

The ECB will do "all it can" to reinforce consumer and business confidence, and economic reforms are fundamental to boost euro zone growth, ECB President Jean-Claude Trichet said in a discussion among central bankers from China, Europe and Japan in Beijing.

"Trichet suggested that maybe he has to do something about interest rates," said a trader at a European brokerage in Tokyo.

"That means a possible lowering of rates."

A cut in rates would further underscore the dollar's interest-rate advantage over the euro. U.S. rates stand at 3.0 percent, compared with 2.0 percent in the euro zone.

Trichet's comments came a day after ECB Chief Economist Otmar Issing said policy strategy did not rule out a rate cut.

The ECB has kept rates steady since June 2003, even as the 12-nation currency region has failed to show sustained recovery, with business and consumer confidence weak and unemployment high.

The euro tumbled almost 3 percent against the dollar last week after voters in France and the Netherlands rejected a proposed new European constitution, throwing into question the future of European political and monetary integration.

Prospects for the new EU constitution dimmed further on Monday when Britain said it had shelved legislation on holding a referendum on it.

"The turmoil is still affecting the euro," said the brokerage trader.

"Even after the U.S. nonfarm payrolls and yesterday's dollar weakness in Asia, the euro still looks pretty heavy on the topside."

By 0329 GMT, the euro fetched around 130.95 yen after falling to around 130.85, its lowest level since late June 2004.

The dollar was little changed at around 106.85 yen in sight of a three-week low of 106.72 yen struck on Monday.

The euro bought $1.2260 little changed from late New York trade and around 1 cent above last week's eight-month low of $1.2158.

It slipped to just below $1.2240 on Trichet's comments, before recovering those losses, partly on views that the currency may be oversold.

EURO SUPPORT

The euro found some respite against the dollar on Monday as the market reassessed weak U.S. jobs data and took profits on last week's rally in the dollar.

The dollar had maintained its strength on Friday even in the face of a U.S. employment report that showed the economy created fewer than half the number of jobs in May that economists had expected.

Currencies moved little on Tuesday on comments by China's central bank chief that Beijing was determined to reform its forex regime while reiterating that outside pressure for a revaluing of the yuan would not make it happen sooner.

Federal Reserve Chairman Alan Greenspan, who took part in the Beijing meeting via video link, also repeated that it was to China's advantage to loosen the yuan peg to the dollar.

He said a more flexible yuan would not necessarily cut the huge U.S. current account deficit.

Any revaluing of the yuan is seen giving a lift to the yen and other Asian currencies.

[the anti-liberal]

Let's see... the French 'Non!', the Dutch 'No!'... to anyone invested in the Euro, whether shorting or (shudder) longing, I ask you- do you really think it will recover appreciably before the EU simply crumbles? Though one would hate to sell so low, perhaps one might consider cutting their losses now, before it drops much lower and never recovers.

Of course I could be wrong, maybe the EU will experience a miraculous recovery...

[SkyPilot]

The Euro needs to drop at least 30 cents to the dollar. this is what it was worth in 2001, and this is about what the rate should be. Greece, Spain and Italy have exceeded their debt ceilings every single year the Euro has been in existence. That is ridiculous. If it were not for German banks writing get out of jail free cards, the whole house of cards would collapse.

[Red Sea Swimmer]

If the Euro falls in the Financial Forest will anyone care ?

[KateatRFM]

It's been holding around $1.53 Canadian since the double No vote, down from $1.67. I keep hoping it will drop more before I buy on Friday.

[SkyPilot]

It's been holding around $1.53 Canadian since the double No vote, down from $1.67.

The Euro has been holding against the Dollar since the "no" vote also, down a bit, but not nearly enough.

Interestingly enough, German newspapers and magazines advised people to look at the serial numbers on their Euro notes for the prefix of country origen. If they began with the prefix "S"--it means they are Italian Euro notes. Since Italy is talking about bringing back the Lira, Germans were warned to get rid of their Italian Euro notes as soon as possible.

[AFPhys]

The downside risk for the Euro is much greater than upside potential. Upside action is almost certain to meet with hard resistance.

Anyone betting for the Euro now needs to have deep pockets and loads of guts.