* Euro pinned down as German Ifo misses expectations
* S&P upgrade of Spain's credit rating stems euro's fall
* Dollar holds steady despite lower Treasuries yields
* U.K., U.S. financial markets are closed on Monday
(Updates market action, adds quote)
By Richard Leong
NEW YORK, May 23 The euro fell to a three-month
low against the dollar and a 17-month trough against the pound
on Friday after a disappointing report on German business
sentiment supported the view the European Central Bank will cut
interest rates next month.
Concerns that Sunday's European Union election results could
destabilize some euro zone governments also weighed on the euro.
Germany's leading indicator of business confidence, the Ifo
index, pointed to slower growth in Europe's largest economy as
the index hit its lowest level this year in May.
"That put pressure on the euro. It reinforces expectations
the ECB will ease policy sooner rather than later," said Eric
Viloria, currency strategist at Wells Fargo Securities in New
The euro fell to a three-month low of $1.3614 and briefly
broke below its 200-day moving average of $1.3636 before
retracing to $1.3631. Against the yen, the single
currency was flat at 138.92 yen, erasing modest
losses, and held above a 3-1/2 month low set on Wednesday.
The euro fell to a 17-month low against the pound at 80.815
British pence before moving back to 81.000 pence.
Trading volume, as expected, faded faster than usual before
the weekend. There is a U.K. bank holiday on Monday while U.S.
financial markets will be closed for Memorial Day.
Investors also trimmed euro holdings before EU election
results due at about 2100 GMT on Sunday, traders said. A strong
showing by fringe parties would highlight the anti-euro and
anti-austerity sentiment in countries like Italy and Greece that
have regained market confidence.
"There are some concerns about the extremist parties gaining
ground," said Alan Ruskin, global head of G19 currency strategy
with Deutsche Bank in New York.
Weaker euro zone members have shown progress in managing
their high debt loads. Earlier, Standard & Poor's upgraded
Spain's credit rating by a notch to BBB, helping to stem euro's
fall and to spur a rally in peripheral euro zone debt.
The euro's modest losses boosted the dollar index,
which tracks the greenback against a basket of major currencies,
to its highest in six weeks at 80.443 before easing to 80.364.
Against the yen, the dollar was up 0.2 percent at 101.93
, recovering from the 3-1/2 month low of 100.805 yen hit
two days earlier.
The benchmark U.S. 10-year yield finished at
2.536 percent, down 2 basis points on the day despite a
stronger-than-expected new home sales report. It touched a 1-1/2
week high of 2.566 percent on Thursday, almost 10 basis points
above the 6-1/2 month low set last week.
(Additional reporting by Anirban Nag in London; Editing by Toby
Chopra, Susan Fenton, Meredith Mazzilli and Nick Zieminski)