FOREX-Euro near 2-week low after Draghi cautions on its gains

Thu Feb 7, 2013 7:04pm EST

Related Topics

* Draghi says will monitor impact of euro strength

* Yen on course to log seven straight weeks of fall

* Pound recovers after incoming BoE chief drops no easing hint

* Aussie near 3-month low; RBA, China data in focus

By Hideyuki Sano

TOKYO, Feb 8 (Reuters) - The euro hovered near two-week low on Friday after the European Central Bank chief spoke on Thursday, said he would monitor the impact of the currency's strength, making more straightforward remarks on the exchange rate than many had expected.

ECB President Mario Draghi said on Thursday that the exchange rate is important for growth and price stability and that he wants to see "whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned."

The euro traded at $1.3392, close to its late U.S. levels after having fallen 0.9 percent on Thursday. At one point it fell as low as $1.33705, the lowest since Jan. 25

Draghi said economic activity in the euro area should recover gradually in 2013 but added there are more negative risks than positive.

"I got the impression that he went into greater depth than expected...given that last month he just read out a G20 statement, when he was talking about currencies," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Traders are not yet convinced whether the euro's uptrend since late last year is coming to an end. But that could happen if investor fears of political uncertainty in Italy and Spain intensify in coming weeks.

The euro also slipped to two-week low against the British pound, which broadly strengthened after incoming Bank of England governor Mark Carney gave no hints that he favoured immediate easing monetary policy.

The pound also rose against the dollar to $1.5714, off six-month low of $1.5630 hit on Monday.

The single currency also slipped against the yen from 33-month high of 127.71 yen set on Wednesday to trade at 125.32 yen.

Against the dollar, the yen stood at 93.64 yen per dollar , not far from 33-month low of 94.075 hit earlier in the week.

The dollar/yen is up nearly one percent so far this week in its seventh straight week of gains as investors sold the yen on expectations that Japan will pursue aggressive monetary easing to shore up the economy.

The Australian dollar slipped to three-month lows against the dollar. The currency has many potential trading factors on Friday, starting from the RBA's quarterly policy statement at 0030 GMT. Analysts expect it to trim near-term forecasts for inflation and economic growth, leaving the door wide open for a further rate cut in coming months.

That will be followed by a string of economic data from China, Australia's top trade partner.

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