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REFILE-FOREX-Euro slides on Germany comments, dlr jumps pre-G20

Published 03/27/2009, 07:19 AM
Updated 03/27/2009, 07:24 AM
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* Euro slides on Steinbrueck's EU fiscal stability remarks

* Dollar rallies broadly on Japan, Russia G20 view

* Euro falls 2 cents intraday to below $1.34

(Adds quotes and comment, updates prices)

By Jamie McGeever

LONDON, March 27 (Reuters) - The euro slid sharply on Friday after Germany's finance minister said fiscal irresponsibility in Europe could put the currency at risk, and the dollar drew extra support ahead of next week's Group of 20 leaders' meeting.

Senior Japanese and Russian officials said the dollar's status as global reserve currency is unlikely to be discussed at next week's G20 meeting in London, cooling some speculation this week that it would be.

This gave the dollar broad support, while German finance minister Peer Steinbrueck's comments, weaker-than-forecast euro zone industrial orders and German state inflation data triggered a huge batch of pre-placed euro sell orders, traders said.

The euro lost more than two full cents on the day to hit a week low of $1.3369, severely testing the strength of long-term technical support at the 200-week moving average of $1.3380.

"The move in the euro is all about the Steinbrueck comments," said Chris Turner, head of FX strategy at ING.

Steinbrueck told the German parliament that the euro was at risk if the European Union's Stability and Growth Pact, which governs the continent's rules on budget deficits, isn't taken seriously.

"Germany, as a member of the EU, has a massive interest in the credibility of the Stability and Growth Pact, which as you know is not taken so seriously by some," Steinbrueck said.

"If it is not taken seriously, I am telling you, the euro will have trouble one day in terms of its own credibility and stability."

At 1045 GMT the euro was down 0.8 percent on the day at $1.3420, having fallen as low as $1.3369 from an intraday high of $1.3591 and $1.3550 just before Steinbrueck's remarks.

"Moving one and a half big figures (cents) on comments like that earlier from Steinbrueck just goes to show how nervous and irrational the market is right now," said a trader in London.

The euro was 1.5 percent down against the yen at 131.70 yen, while the dollar was down 0.6 percent against the yen at 98.10.

The dollar index, a measure of the dollar's value against six major currencies, was up 0.6 percent on the day at 84.58, having earlier traded down on the day.

EYES ON G20, DOLLAR

Data on Friday showed that euro zone new industrial orders slumped 34 percent year-on-year in January, while German state inflation data ahead of the national figure showed consumer prices falling in March.

The European Central Bank is widely expected to cut interest rates by 50 basis points to 1 percent next Thursday but may also announce further liquidity-boosting measures.

The yen's broad gains were boosted by dealers picking up the Japanese currency at cheap levels following this week's slide and on last-minute repatriation ahead of the fiscal year-end.

The dollar's broad gains, meanwhile, were in part fuelled by comments from a senior official at Japan's Ministry of Finance and a senior Russian central bank official that the dollar will remain the world's reserve currency for some time.

This cooled some of the fervour surrounding the debate on the dollar's long-term status as the world's reserve currency, which gathered momentum this week amid calls for a more prominent role for the International Monetary Fund's Special Drawing Rights. Some traders have been unnerved by the debate after U.S. Treasury Secretary said he was "quite open" to exploring the idea of expanding the use of the IMF's SDRs.

"Geithner's comments ... spooked currency investors, leading to a brief dollar sell-off. But Treasury and IMF officials have reaffirmed the dollar's status as the dominant reserve currency and we think the dollar can also benefit further from the G20 summit and the ECB's next meeting," UBS said in a research note.

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