FOREX-Euro falls broadly as Ireland confidence erodes

Published 11/11/2010, 09:52 AM
Updated 11/11/2010, 09:56 AM

* Euro near 5-week low vs dollar on Ireland debt problems

* Technical analysts looking for daily close under $1.3690

* G20 meeting under way, market sets expectations low (Adds detail, updates prices, adds comment, changes byline, dateline, previous LONDON)

By Steven C. Johnson

NEW YORK, Nov 11 (Reuters) - Doubt about Ireland's ability to repay its debts spread further on Thursday, driving the euro lower and overshadowing G20 attempts to ease currency tensions and secure commitment to more balanced global growth.

Yields on 10-year Irish bonds rose to a record high over comparable German debt as some investors worried that Ireland wouldn't be able to cut spending as planned and may require a bailout, with bond holders forced to absorb losses.

The euro was down 0.5 percent at $1.3717, not far from a five-week low of $1.3670 hit a day ago, and was also lower against the yen, Swiss franc and sterling.

"The euro can't sustain even modest upticks right now, and a fall below $1.3650 could open up another two-cent decline," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, who sees it at $1.33 by the end of 2010.

"Europe never fully addressed these problems, and it's clear solvency issues in Ireland have not been resolved."

Traders said demand for downside options was increasing, particularly one-month $1.3200 strikes, which could push the euro toward that level in the weeks ahead.

The spike in Irish yields and decline in German ones as investors seek shelter in bunds has happened as U.S. yields have turned higher, lifted partly by a string of strong U.S. economic data, including last month's employment report.

That makes holding the dollar more attractive and also helped it rise above 82 yen this week for the first time since early October. It was last unchanged at 82.26 yen.

On Wednesday the dollar rose to around 82.80 yen, just shy of 82.87, the level around which Japan intervened in September to slow a multi-month yen rally. Traders cited options barriers around 83 yen.

There was still uncertainty about the dollar's medium-term outlook, especially after the Federal Reserve said it would buy some $105 billion in Treasuries over the next 30 days. Last week, the Fed said it would buy $600 billion by mid-2011 in an attempt to lower U.S. interest rates and boost slow growth.

"It's only the negativity surrounding the dollar that's saving euro/dollar from a sharper correction lower," said Tom Levinson, currency analyst at ING in London.

The Veterans Day holiday in the United States, where some markets will be shut, was helping keep the market subdued.

G20

Ireland's woes and concern about debt levels in Portugal and Spain diverted traders' attention from a G20 summit in South Korea. Discussion was expected to include exchange rate policies and global economic imbalances, though agreement is unlikely and few investors expect a final statement to expand on last month's finance ministers' agreement.

Much of the disagreement on currencies lies between the United States and China, with the former eager to see the Chinese yuan appreciate at a faster pace.

A senior Chinese central bank official said China had no intention to confront the U.S. over its currency rate, and that the issue should not be politicized.

China and other countries, meanwhile, have criticized the Fed's easy money policy, saying it is stoking inflation beyond U.S. borders.

Former Fed Chairman Alan Greenspan said Wednesday the U.S. central bank was pursuing a weaker dollar policy, prompting a sharp denial from Treasury Secretary Timothy Geithner.

"The U.S. will never do that," Geithner said in an interview on CNBC. "We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy." (Additional reporting by Neal Armstrong in London; Editing by James Dalgleish)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2025 - Fusion Media Limited. All Rights Reserved.