Euro hits one-week low

The euro fell to its lowest level in a week against the dollar on Thursday as US data showed the economy lost steam earlier this year but remained in better shape than the eurozone. A recent string of robust US data and comments by Federal Reserve Chairman Ben Bernanke have downplayed, but not erased, expectations of more monetary easing.
That contrasts with the European Central Bank's massive cash infusion on Wednesday via its Longer Term Refinancing Operation. European policymakers have made some progress in combating Europe's debt crisis, contributing to a fall in European bond yields and a rise in the currency. But the euro's gain has not been accompanied by a supportive shift in the euro zone's relative monetary policy fundamentals, said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York. Bennenbroek said he targets EUR/USD at $1.3000 in three months and $1.2200 in 12 months.
The euro was last down 0.2 percent at $1.3304 after touching a one-week low of $1.3280, breaking near-term support at its 100-day simple moving average of $1.3293. The euro hit a three-month high of $1.3485 on Wednesday, according to Reuters data. The euro also posted its best monthly performance in February since October.
"The euro is now in a consolidation phase after a position squeeze that started last week," said Greg Anderson, G10 strategist at CitiFX, a division of Citigroup, in New York.
Testimony from Federal Reserve Chairman Ben Bernanke to a Senate panel was closely watched but had minimal impact. Repeating Wednesday's prepared remarks, the Fed chairman cautioned that the recent steep drop in the US unemployment rate was unlikely to continue given a still-soft economy, but he stopped short of signalling a further easing of monetary policy.
Another round of asset purchases, or quantitative easing, would be negative for the dollar as it is tantamount to printing money. That contrasts with the ECB's recent cash infusion via its Longer Term Refinancing Operation. "One can argue that the market may be interpreting the LTRO as a form of QE and we are getting a whiff of that in today's trading," said CitiFX's Anderson.
The dollar was last down 0.1 percent at 81.08 yen, remaining close to a nine-month high touched on Monday as the yen remains under pressure after Bank of Japan easing measures. UBS strategists said they expect the Fed to normalise rates much earlier than the Bank of Japan, a policy divergence that should lead to a widening of the gap between two-year Treasuries and Japanese government bond yields.
The yield gap has a tight correlation with the dollar/yen pair and a widening should see the dollar drift higher. As such, UBS expects the dollar to rise to 85 yen by 2012 and 90 yen by 2013 and repatriation flows ahead of the Japanese financial year end in March are unlikely to be supportive of the currency.