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FOREX-Euro slips on debt worries, growth concerns

Published 06/10/2011, 04:47 AM
Updated 06/10/2011, 04:52 AM
EUR/JPY
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* Euro falls further as market eyes Greece, slowing growth

* Downside risks seen, support at $1.4419

* Dlr/yen hovers near 80.00 yen, safe-haven bidding

By Nia Williams

LONDON, June 10 (Reuters) - The euro fell on Friday as worries about the Greek zone debt crisis and a weakening global growth outlook eclipsed any support from a likely euro zone interest rate rise next month.

European Central Bank president Jean-Claude Trichet signalled on Thursday the benchmark refinancing rate, currently at 1.25 percent,would rise next month. Markets had expected as much and already priced in the prospect of a July hike.

Investors shifted their focus back to Greece's debt woes, putting selling pressure onto the single currency. It was last down 0.3 percent on the day at $1.4460, struggling to regain its footing after crashing from above $1.46 before Trichet spoke.

Solid technical support is seen at $1.4419, a 38.2 percent retracement of the May 23-June 7 rally.

The ECB kept its 2012 inflation forecast unchanged, suggesting the pace of euro zone interest rate hikes may be slower than previously thought.

"The deteriorating growth outlook has taken precedence in investors' minds, rather than there will a rate hike in July. Euro zone rate expectations for Q1 2012 have now fallen quite sharply against the U.S.," said Adam Myers, FX strategist at Credit Agricole.

"The growth outlook has been moderated by everyone in the market and we could be in a situation next year where the Federal Reserve is still moving towards tightening while the ECB is not doing anything."

Investors have scaled back their expectations of the pace of ECB interest hikes. After July, another move is not priced in until early next year.

Trichet also used the news conference to signal the ECB's opposition to forcing private creditors to take part in debt relief for Greece, in contrast to Germany, which has demanded a bond swap to lengthen Greek debt maturities. [ID:nLDE7581Z8]

A lack of unity among euro zone officials further rattled the market, adding to concerns the crisis would drag on for some time to come.

"The image of European policymakers and the ECB standing toe to toe on this particular issue is something investors find deeply unsettling," said Michael Derks, chief strategist at FXPro.

"The ECB are saying we are not going to help anymore than we have done through liquidity provisions and buying secondary bonds. Essentially they are saying to European policymakers that taxpayers have to foot the bill."

YEN STRENGTH

The yen was up against the dollar and euro, benefitting from a risk-off sentiment in the market, stemming from recent weaker macroeconomic data from around the globe that also pushed commodity currencies lower.

The euro fell to a 115.73 yen , close to a low of 115.50 yen last seen on May 30 while the greenback fell 0.3 percent to 80.05 yen .

Traders said order books were weighted towards dollar sellers after the dollar reached a one-week high of 80.47 yen on Thursday, with reports of options barriers to be defended at 79.50.

Japanese importers and investors were expected to show strong buying interest below 80 yen, traders said.

The dollar index <.DXY> rose 0.3 percent to a one-week high of 74.404.

Sterling dipped to a session low of $1.6215 against the dollar after UK industrial output data dropped more than expected in April. [ID:LDE7590IX]. But the pound then recouped losses to last trade at $1.6264, little changed from pre-data levels.

The Australian dollar fell 0.2 to $1.0612, having been hit this week by data showing a slowdown in employment growth and a statement from the central bank that was interpreted as showing no urgency to raise rates.

(Additional reporting by Chikafumi Hodo and Ian Chua; Editing by John Stonestreet)

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