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* Speculation of more ECB action drives yields down, hits
* Euro falls to lowest in nearly two years on Swiss franc
* Sterling & Aussie show some resilience
By Shinichi Saoshiro and Ian Chua
TOKYO, Aug 26 The euro plumbed a one-year trough
against the dollar on Tuesday as prospects for further easing by
the European Central Bank weighed on the currency along with
weak eurozone data and the resignation of the French government.
Faced with a host of negative factors the euro dropped as
low as $1.3178 before limping back to $1.3200.
Hot on the heels of dovish comments from the head of the
ECB, a report released on Monday showed German business
sentiment sagged for a fourth month running.
Negative yields further removed support for the common
Speculation the ECB was preparing a programme of asset
purchases drove most euro zone government bond yields to record
lows on Monday, with Germany's two-year yield dipping to a
16-month low of five basis points below zero percent.
Kyosuke Suzuki, director of forex at Societe Generale in
Tokyo, said euro was contending with a bullish dollar while
facing its own bearish factors.
Speculation that the Federal Reserve will raise interest
rates sooner than expected has boosted the dollar.
"Euro/dollar is vulnerable to testing new lows. A downtrend
is easily formed given the opposite directions Fed and ECB
monetary policies are seemingly headed... political trouble in
France, a core eurozone country, is also a bearish factor,"
Suzuki at Societe Generale said.
The euro extended its decline against the Swiss franc
overnight to almost a two-year low, weakening to 1.2065 francs
per euro, with the market close to testing the Swiss
National Bank's three-year old pledge to cap its currency at
1.20 per euro.
Investors also sold the euro against the yen and sterling,
pushing it to a near one-week low of 137.03 yen and a
two-week low of 79.50 pence.
"We expect the broader trend of euro weakness to persist and
remain short EURGBP in our recommendations portfolio targeting a
decline to 0.76," analysts at BNP Paribas wrote in a note to
They added that data on Friday could show a further decline
in the euro zone annual inflation rate to just 0.2 percent.
"This should add to the growing list of potential triggers
for further ECB easing and weigh on the euro."
Weakness in the euro helped underpin the dollar index
, which remained close to its September 2013 peak of
82.671. A break there will take it back to highs unseen since
July last year.
On the yen, the dollar dipped 0.1 percent to 103.92,
having peaked at a seven-month high of 104.49 overnight.
Sterling bounced off a five-month low of $1.6501 to
last trade at $1.6558, making it one of the best performers
against the broadly firmer greenback.
The Australian dollar was also quite resilient, ceding only
a bit of ground against the U.S. dollar. It dipped below 93 U.S.
cents, but was still well within its 92-95 cent band
seen in the past five months.
That support partly reflected the market's preference to buy
the Aussie against the New Zealand and Japanese currencies. The
Aussie scaled a nine-month peak of NZ$1.1169 and
reached a near 15-month high of 97.27 yen on Monday,
before pulling back to 96.55.
(Editing by Simon Cameron-Moore)