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FOREX-Debt unease slams euro to all-time low vs CHF

Published 12/20/2010, 06:21 AM
Updated 12/20/2010, 06:24 AM

* EUR falls to 1.2701 Swiss francs

* Euro struggles on Irish, euro zone debt uncertainty

* Analysts expect more losses in single currency

(Adds detail, updates prices)

By Naomi Tajitsu

LONDON, Dec 20 (Reuters) - The euro hit an all-time low against the Swiss franc and struggled versus the dollar on Monday as investors looked for more aggressive solutions from European leaders to the euro zone's debt problems.

The shared currency fell to 1.2701 Swiss francs according to electronic trading platform EBS, its weakest since the euro's launch in 1999, as investors sought a safe haven in the Swiss currency.

The euro was continuing to smart from last week's Irish sovereign rating downgrade by Moody's, and analysts said it would continue to struggle until European officials clarify how they will address the funding and liquidity problems of countries whose debt burdens are troubling investors.

"The ratings change at the end of last week is still keeping the euro under selling pressure," said Carl Hammer, currency strategist at SEB in Stockholm.

He added that a swap arrangement between the European Central Bank and the Bank of England last week to boost sterling liquidity for Irish banks underlined that their problems had not been fully resolved by the country's bailout last month.

The ECB expressed "serious concerns" that Ireland's bailout package could affect the institution's liquidity operations in the euro zone, while President Jean-Claude Trichet said Dublin needed to stick "rigorously" to the rescue plan.

Analysts said the euro was also struggling after EU leaders last week failed to come up with a substantive plan to bulk up a temporary support fund for the currency bloc's weaker economies.

"There's a need to address the underlying risks and structural issues in the euro zone," said Ned Rumpeltin, head of G10 currency strategy at Standard Chartered.

"Until there's more clarity on where ultimate responsibility lies -- not just fiscal but at the policy level -- we'll be living with this issue for quite some time." Standard Chartered forecasts the euro will slide to $1.20 by mid-2011.

On Monday the euro slipped 0.2 percent to $1.3150, approaching $1.3125 hit in earlier trade, its lowest since Dec. 2.

TECHNICAL SUPPORT

Traders said demand for euros from Russian participants in early European trade had run into selling by Swiss names, while a U.S. investment house was seen dumping euros in hefty volumes. The euro was supported against the dollar around $1.3100-1.3090, a retracement level and its 200-day moving average. A break below that would open the way to the 1.2960 support level, technical analysts at Credit Agricole said.

Many in the market expect the euro to remain vulnerable into the new year, although activity is dwindling ahead of holidays at the end of the week in many financial centres.

The latest FX positioning data suggests sentiment remains negative for the euro as speculators held a net short position in the single currency last week for the fourth consecutive week, while net longs in the Swiss franc have increased.

The dollar was underpinned in Asia by tensions on the Korean peninsula. South Korea held live-fire drills in a disputed area on Monday despite threats of war from Pyongyang, which prompted selling of the South Korean won.

The dollar eased 0.2 percent against the yen to 83.80 on Japanese corporate selling, slipping further below last week's three-month high of 84.51 yen.

(Editing by John Stonestreet/Ruth Pitchford)

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