Euro slips in London

10 May, 2013

The euro eased against the dollar on Thursday, taking a pause after two days of gains, pegged back by expectations of more monetary easing by the European Central Bank and by a rise in Spanish bond yields. The single currency lost ground against the British pound after the Bank of England kept interest rates on hold and left its asset buying programme unchanged.
It also fell against the Australian and New Zealand dollars, which were buoyed by better-than-expected jobs numbers. Both currencies rebounded from lows struck after their central banks moved this week to tame their strength. The euro fell to $1.31345 from a session high of $1.31775, failing to build on gains made after robust industrial data from Germany this week. It was partly hurt by a rise in Spanish bond yields with most looking to sell at $1.3200.
"The euro has been supported by buying by sovereign investors, who have been buying German bunds or stocks. Some of those flows are slowing, and to us once the euro moves to around $1.32, it is a sell," said Mankash Jain, head of FX at hedge fund, Solo Capital.
ECB policymakers Yves Mersch and Joerg Asmussen said on Wednesday the central bank still had room to manoeuvre should the euro zone economy continue to weaken. The ECB cut its main rate to 0.5 percent last Thursday.
While German industrial data beat expectations, overall economic activity across most of the euro zone remains sluggish, keeping alive expectations that the ECB may act again soon. "Investors have been focusing on the good German data and ignoring the soft patch elsewhere," said Peter Kinsella, currency strategist at Commerzbank. "The market being structurally short of euros, we think there could be some more gains before it eventually grinds lower." One of the reasons euro is not falling sharply, especially against the dollar, is because the US economy appears to be losing steam. That has underpinned expectations the Federal Reserve will continue to keep policy ultra-loose.
Sterling rose to a session high of $1.5589 after the BoE decision, from $1.5568 beforehand. The Australian and New Zealand dollars also bounced after both countries posted strong jobs data. Investors drove the Aussie up 0.6 percent to $1.0232 after the economy added 50,100 jobs in April, well above expectations. The data helped it recover from a two-month low of $1.0155 struck on Tuesday, after Australia's central bank cut interest rates to a record low. The kiwi rose 0.7 percent $0.8460 after data showed unemployment falling to a three-year low in the March quarter and a hefty rise in full-time jobs.

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