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FOREX-Euro falls vs dollar and yen as shares fall

Published 04/08/2009, 07:22 AM
Updated 04/08/2009, 07:24 AM
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* Euro falls vs dollar, yen as shares stumble

* U.S. corporate earnings season worries sap risk appetite

* German industrial orders fall 3.5 percent m/m in Feb

* US Fed minutes later Weds, BoE rate decision Thurs awaited

(Adds quotes, updates prices, changes byline)

By Jessica Mortimer

LONDON, April 8 (Reuters) - The euro fell against the dollar and the yen on Wednesday as jitters ahead of the U.S. corporate earnings season pushed shares lower and dented demand for currencies perceived to be higher risk.

European shares fell 0.6 percent and U.S. S&P 500 futures lost 0.5 percent after Alcoa on Tuesday began the earnings season by reporting a loss, raising concerns that other firms may also post poor results in the coming weeks.

As investors increasingly shunned risky assets this stoked demand for the perceived safety of the U.S. dollar and the Japanese yen, which typically gain in times of heightened risk aversion.

Alongside other currencies seen as higher risk, the euro came under selling pressure, with data showing German industrial orders fell a bigger-than-expected 3.5 percent during February emphasising the troubles facing Europe's largest economy.

Earlier comments from Dallas Federal Reserve President Richard Fisher that the euro faced even more problems than the dollar also hit the common currency.

However, analysts said with liquidity thin ahead of the Easter weekend and little in the way of major data releases, currencies are being driven by market risk sentiment and equity markets.

"This week there is very little economic data on the agenda that could have the power to move currency markets," said Brussels-based KBC market analyst Peter Wuyts.

"In the absence of other important guides, risk aversion is the most obvious driver," he said.

He said currency movements had been mirroring equities closely and that this was likely to remain the case going into the long weekend.

At 1048 GMT, the euro traded 0.2 percent lower at $1.3246 as it continued to retreat from a climb to nearly $1.36 at the start of the week when market optimism still reigned in the wake of last week's summit of Group of 20 leaders.

Against the yen, the common European currency was down 0.6 percent at 132.43 yen.

The dollar was higher against the euro on its perceived safety, although its was lower against the yen, falling 0.5 percent to 99.96 yen.

The Japanese currency continued its rebound, breaking further below the key 100 yen level against the dollar after the U.S. currency hit a six-month high of 101.45 yen earlier in the week.

The U.S. and Japanese currencies are likely to keep drawing demand as investors stay away from higher-yielding currencies such as the Aussie, dealers said.

The yen rallied against sterling and the Australian and New Zealand dollars, which fell around 1 percent and 0.7 percent respectively versus the yen.

"With risk aversion lingering commodity currencies (such as the Australian and New Zealand dollars) are most vulnerable to a further leg lower," currency strategists at Bank of Scotland Treasury said in a note to clients.

FED MINUTES, BOE AHEAD

In a speech in Tokyo on Wednesday, the Fed's Richard Fisher said the U.S. economy was grim, while adding that the problems facing the euro were "perhaps even more substantial" than those of the dollar.

Fisher, who is not a voting member of the Fed's policy-setting committee this year, also said that he would not comment on whether the dollar's recent climb would be short-lived.

Later on Wednesday the Fed will release minutes from its policy meeting in March, when it announced it would start buying longer-dated U.S. Treasuries as part of quantitative easing.

Markets are also awaiting a policy decision by the Bank of England on Thursday, where rate setters are expected to leave UK interest rates on hold at 0.5 percent.

In other news, Ireland announced its second emergency budget in six months on Tuesday, which traders said also weighed on the euro as it highlighted strains in the euro zone.

The budget included harsh spending cuts and tax increases, and it is expected to face a significant increase in gross national debt to finance a new agency to buy soured bank loans. .

(Reporting by Jessica Mortimer)

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