* ECB's Nowotny reassures market after Juncker comments
* U.S. inflation data does little to sway sentiment
* Dollar/yen under pressure from profit-taking
By Julie Haviv
NEW YORK, Jan 16 The euro slumped against the
dollar on Wednesday for a second straight session as soothing
comments about the currency's recent strength made by a European
Central Bank policymaker gave way to profit taking and concerns
about the region's economy.
The euro briefly turned positive after ECB member Ewald
Nowotny said the exchange rate was "not a matter of major
concern", a strong contrast to comments from Eurogroup head
Jean-Claude Juncker who on Tuesday prompted investors to sell
the euro by saying it was "dangerously
The euro last traded at $1.3274, well below an
11-month high of $1.3403 reached on Monday.
"Nowotny's comments temporarily supported the euro, but that
faded quickly as positive earnings in the U.S. supported the
U.S. growth outlook story and contrasted what is going on in the
euro zone," said Camilla Sutton, chief fx strategist at
Scotiabank in Toronto.
Weak economic data from Europe highlighted a disparity with
the U.S. economy, which has been recovering, albeit not fast
enough to change the Federal Reserve's policy.
Demand for new cars in Europe fell to a 17-year low in 2012.
and even the German economy is suffering from
the euro zone recession.
If economic data continues to weaken the ECB may opt to cut
rates, a negative for the euro.
Muted inflation pressures in the U.S., however, should give
the U.S. Fed more room to prop up the economy by staying on its
ultra-easy monetary policy path. U.S. consumer prices were flat
The euro had rallied smartly in the days following last
week's ECB meeting. ECB President Mario Draghi downplayed
expectations of another rate cut and painted a more positive
outlook for the euro zone economy.
Some analysts said the euro could struggle to move higher
given the poor growth outlook for the region.
"Of course, the euro has momentum, but there are risks of
slippage in the euro zone given the outlook for growth is weak
and there is always a chance Italy and Spain can miss their
deficit targets, "said Neil Mellor, currency strategist, at Bank
of New York Mellon.
YEN GAINS AGAIN
The euro had climbed to its highest in 20 months earlier
this week after the ECB dashed expectations of a near-term rate
cut and the yen weakened as Japanese officials ramped up
pressure on the Bank of Japan to ease monetary policy
aggressively and weaken the currency.
However, a correction in the yen gained sharply for a second
straight session against the dollar in the aftermath of Japan's
Economics Minister Akira Amari comments on Tuesday in which he
cautioned that excessive yen weakness could boost import prices
and hurt people's livelihood.
The dollar last traded at 88.32, down 0.5 percent on
the day. Traders cited supporting bids at 87.70/80 yen.
The euro also fell against the yen to last trade down 0.7
percent on the day 117.28.
Many traders called the yen's strength a healthy correction,
given the yen has lost substantial ground since in recent months
and hit a 2-1/2 year low of 89.67 on Monday.
A rising currency hurts exports and major central banks,
including the Federal Reserve, the Bank of England and the Bank
of Japan, have been printing money in an attempt to keep the
value of their currencies lower by increasing supply.
Investors have put on big bets against the currency with the
new government in Tokyo very vocal about pressing the BOJ to
tackle deflation, calling for a 2 percent inflation target.
The BOJ is widely expected to agree to such a target at its
policy meeting on Jan 21-22, although some traders said there
could be buy-on-rumour-sell-on-fact selling in dollar/yen
"I haven't come across anyone who seriously thinks that the
BOJ can boost inflation to 2 percent," said Takako Masai, head
of forex at Shinsei Bank, adding that the BOJ meeting could
offer a good chance to exit bearish bets on the yen.