FOREX-Euro to remain under pressure as uncertainty reigns

Published 11/12/2010, 05:11 PM
Updated 11/12/2010, 05:16 PM

* Euro seen pressured next week, Ireland uncertainty

* Euro up from 6-week low as U.S. bond and stocks fall

* EU leaders reassure bondholders but fears persist

* China rate-hike talk hurts Aussie dollar (Updates prices, adds quotes)

By Julie Haviv

NEW YORK, Nov 12 (Reuters) - The euro edged up on Friday but still had its worst week against the dollar since August, and traders said lingering uncertainty about Ireland's public finances should keep it under pressure next week.

While the dollar benefited this week from fears that Ireland may need financial assistance to pay its debts, a second round of monetary easing in the United States was likely to limit its gains against the euro in the coming sessions.

Reuters reported that the Federal Reserve is unlikely to curtail plans to buy $600 billion in U.S. government debt over the next eight months.

That means the euro's struggles may be most pronounced against commodity-linked currencies such as the Australian and Canadian dollars and the yen, all of which lagged the U.S. dollar's gains this week, said BNP Paribas strategist Sebastien Galy.

"Those who want to go short euro should consider doing it on the crosses," he said. "We particularly like the Canadian dollar."

The euro shed 2.4 percent against the dollar this week, its biggest slide since mid-August, and fell 1.5 percent against the Canadian dollar, its biggest weekly decline since September. It fell 1 percent against the yen since Monday.

The euro won a brief respite against the U.S. dollar on Friday, rising 0.3 percent to $1.3694 after European leaders said Irish creditors would not be forced to write down the value of their Irish bond holdings in the event of a bailout. The euro had hit a six-week low below $1.36 overnight.

Ireland's Finance Ministry said market talk of a bailout package was untrue, but two-thirds of economists polled by Reuters said Ireland would likely have to seek international rescue funds before the end of 2011.

The euro could potentially test $1.34-$1.35 next week, strategists said.

"All of the factors that weighed on the euro this week could carry over into next week, with the potential debt problems in Ireland and direction of equities likely at the forefront," said John Doyle, currency strategist at Tempus Consulting in Washington.

Against the yen, the dollar was flat at 82.51 yen on Friday but was up almost 1.6 percent on the week, its biggest weekly gain since Japan intervened to weaken the yen in September.

U.S. DATA, CHINA ON MARKET RADAR

The dollar's fortunes next week will be heavily influenced by economic data, including retail sales and inflation.

Analysts said the reports will be watched more for what they tell investors about Fed easing than what they indicate about the outlook for the U.S. economy in the near term, which is weak.

The potential for Chinese rate hikes to fight off inflation will also be on investors' minds. Such speculation knocked stocks, bonds and commodity prices lower on Friday as investors booked profits heading into the weekend.

The Australian dollar, a favorite among investors for its trade links with China, fell as low as $0.9825, its lowest since Nov. 1. It was last down 1.3 percent at $0.9802. It hit a 28-year high last week above $1.01.

Investors will also watch for more capital controls in emerging markets that have complained that the Fed's monetary policy is stoking inflation beyond U.S. borders.

Analysts said a G20 meeting that ended Friday seemed to give the green light to emerging countries with flexible currency regimes to impose capital controls. (Additional reporting by Nick Olivari and Steven C. Johnson in New York; Editing by Leslie Adler)

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