(Updates with midday New York trade, euro slump)
* Euro extends losses on greenback to fresh 1-month low
* German economic sentiment index drop weighs on euro
* Euro at 16-month low vs. pound on rate outlook
By Daniel Bases
NEW YORK, May 13 The euro slumped to a one-month
low against the dollar on Tuesday with selling pressure building
in fits and starts over the course of the session, spurred
initially by a sharp decline in German investor morale.
The monthly ZEW survey of German economic sentiment fell
short of expectations and even undershot the lowest estimate in
a Reuters poll.
Selling of the euro accelerated on Tuesday after a report
from Dow Jones, citing a person familiar with the matter, said
the Bundesbank, Germany's central bank, was willing to back an
array of stimulus measures from the European Central Bank next
The measures could include backing a negative interest rate
on bank deposits and ECB purchases of packaged bank loans if
needed to boost inflation.
Bundesbank sources told Reuters the willingness to support
the ECB has always been there. The ECB's
benchmark rate is at a record low 0.25 percent.
"The euro is still under selling pressure because of the
impression the ECB will, in the end, deliver a rate cut in June.
It got a respite from the U.S. retail sales data," said Martin
Schwerdtfeger, currency strategist at TD Securities in Toronto.
A weaker-than-expected April U.S. retail sales report
briefly alleviated the euro selling.
The U.S. Federal Reserve has kept interest rates near zero
since late 2008 but has started scaling back its bond-buying
program, which aimed to keep borrowing costs down to spur
investment. That tapering has brought the bond buying to $45
billion each month from a high of $85 billion.
The euro fell below $1.3700, a key technical support level,
to trade near the session low $1.3688, off 0.45 percent on the
day. It made a clean break below the 38.2 percent
Fibonacci retracement of the euro's rise from around $1.33 in
November to a 2-1/2 year high last week.
"If it ends up closing below or really close $1.3670 today
we will see further downward pressure on the euro in the coming
days. The next point to watch is support at $1.3650," said
The euro plumbed 16-month lows of 81.35 pence,
off more than 0.20 percent against sterling. The pound was
buoyed by prospects of rate hikes by the Bank of England as
early as later this year.
Data showed British retail sales jumped in April as rising
house prices encouraged shoppers to buy new furniture, flooring
and other home decor over the Easter holiday weekend.
The dollar retreated from earlier one-week highs against the
Japanese currency to trade up 0.15 percent at 102.27 yen.
The dollar broke and held above its 100-day moving average
against the Swiss franc. It gained 0.30 percent to a one-month
high of 0.8902 francs.
(Editing by Catherine Evans, Peter Galloway and Meredith