The euro stayed under pressure on Friday after the European Central Bank dealt it a major setback by not immediately reviving bond buying to lower crippling borrowing costs for Spain and Italy. Many market players think the euro's downtrend will likely continue, though further losses may be limited for now as investors retreat to the sidelines ahead of the US non-farm payrolls data due at 1230 GMT.
The euro stood at $1.2180, flat from late US levels a day after it skidded nearly three cents from the day's high to $1.21335 after the ECB indicated any intervention would not come before September - and come only if governments activated the eurozone's bail-out funds to join the ECB in buying bonds.
The single currency has erased most of the gains it made after ECB President Mario Draghi set the bar high last week by declaring the bank would do whatever it took within its mandate to preserve the euro. "All the vital decisions seem to be pushed back to September," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank. "But given worries about funding of Greece and Spain, risk for financial markets will rise as time goes by. I just want to beg policymakers to move as fast as possible."
In comments clouding the outlook for ECB action, Draghi indicated that German central bank chief Jens Weidmann had expressed reservations about bond-buying and further efforts would be needed to persuade the Bundesbank before a final vote to take action. "In a way Weidmann is right, because the ECB is not legally allowed to monetise debt while buying government bonds at this stage looks like nothing but magnetising. So we'll have to see how they are going to get around the legal problems," said Seiya Nakajima, chief economist at Itochu Corp.
The recent highs around $1.2390/2406 are likely to become strong resistance for the euro, while initial support comes in at the 25-month low of $1.2042 set last month. The 2010 trough around $1.1876 also remains in play. The euro also underperformed against most other currencies, holding barely above a record low against the Australian dollar hit on Thursday, around A$1.1597. Against the yen, it fetched 95.30 yen, only about one percent above the 11 1/2-year low of 94.12 yen hit last month.
The single currency's slump saw the dollar index bounce up to 83.324, from a four-week low of 82.198 on Thursday before Draghi's news conference. The dollar weakened slightly against the yen, slipping to 78.19 from Thursday's high around 78.54, though wariness about Japan's currency-intervention kept the yen in check.
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