FOREX-Euro steadier but still in the doldrums on ECB threat

Sun May 11, 2014 7:29pm EDT

Related Topics

* Euro opens steadier after big falls in last two sessions

* Prospect of ECB policy action to keep currency pinned down

* No major Asian data on Monday

By Ian Chua

SYDNEY, May 12 (Reuters) - The euro started the week on a steadier footing after two straight sessions of steep losses, but should stay under pressure amid the persistent threat of policy action from the European Central Bank.

The common currency, which plumbed a one-month trough of $1.3745 on Friday, last stood at $1.3759. It has dropped more than 1 percent since Thursday when Mario Draghi said the bank was ready to take action next month should updated inflation forecasts merit it.

Against the yen, the euro was at 140.15, not far from a two-month trough of 139.88. On the Australian dollar, it bought A$1.4698, having touched a one-month low of A$1.4674.

Prospect of fresh stimulus from the ECB saw benchmark Italian and Spanish bond yields fall to record lows on Friday in a broad-based rally in peripheral euro zone sovereign debt.

Traders said the drop in the euro may be done for now as investors wait for fresh reasons to sell the currency. They will be paying close attention to a number of ECB speakers this week including Vice-President Vitor Constancio.

"The market will seek confirmation of the ECB's willingness to act," analysts at Barclays Capital wrote in a note to clients.

Investors will also be keeping an eye on developments in Ukraine amid fears the country is sliding into civil war. Pro-Moscow rebels on Sunday declared a resounding victory in a referendum on self-rule for eastern Ukraine.

The setback in the euro helped the dollar index jump to its highest in over a week at 79.915, a dramatic turnaround from a 20-month trough of 78.906 plumbed on Thursday. It was last at 79.859.

The greenback was little changed on the yen at 101.86 , having found good support again in the 101.40 area.

Commodity currencies were also steady, holding onto recent gains on the U.S. dollar. The Australian currency fetched $0.9362, still within striking distance of a one-month peak of $0.9395 set on Thursday.

There is little in the way of major economic releases out of Asia on Monday. On Tuesday, China's industrial output and retail sales for April will be the highlight. (Editing by Shri Navaratnam)

FILED UNDER: