* Dovish comments from ECB's Draghi weighs on euro
* U.S. Treasury-German bund spreads point to further dollar
* Strong U.S. economic data also lifts dollar
By Anooja Debnath
LONDON, June 26 The euro fell to a three-week
low against the dollar on Wednesday after the European Central
Bank chief flagged downside risks to euro zone growth and said
monetary policy will stay accommodative.
The single currency was down 0.5 percent at $1.3023,
not far from the $1.3014 hit earlier which was its lowest since
June 3. An options barrier was reported at $1.30. Technical
analysts said a daily close below its 200-day moving average at
$1.3073 could trigger more falls towards and below $1.30.
ECB President Mario Draghi said on Wednesday that the
economic recovery in the euro zone would be gradual but fragile,
which was in line with his previous day's comments that the ECB
was nowhere near exiting its accommodative monetary policy.
Analysts pointed to the recent sharp rise in short-term euro
inter-bank lending rates, which could drive the ECB to respond
by easing monetary conditions and in turn weigh on the euro.
The three-month Euribor rate, traditionally
the main gauge of unsecured bank-to-bank lending, had spiked
from 0.198 percent on May 21 to 0.225 percent on June 25.
"The U.S. economy is still in better shape than Europe,
which is still very weak and can't withstand higher (short-term)
rates at this time and rate spreads will continue to pressure
euro/dollar lower," said Paul Robson, FX strategist at RBS.
"Draghi on balance will have to sound a bit more dovish to
make sure that markets don't start pricing in (an interest) rate
hike too early."
Spreads between 10-year U.S. Treasuries and
German bund yields have widened to their highest
since April 2010 in favour of the dollar assets.
The single currency also lost ground on Tuesday to the
dollar which was lifted by encouraging U.S. business spending
and housing data, lending impetus to expectations that the
Federal Reserve will before long begin to scale back monetary
Niels Christensen, currency strategist at Nordea said
investors would "need more confirmation of the growth momentum
in the U.S." for the euro to start falling towards the early May
and early April lows just below $1.28.
The dollar rose to a three-week high of 82.878 against a
basket of currencies, buoyed mainly by solid gains
against the euro.
But it stayed weak against the yen and was down 0.25 percent
at 97.55 yen as worries about a cash crunch in China supported
safe-haven flows into the Japanese currency.
Traders will watch a string of Fed speakers later in the day
to gauge their stance on how quickly monetary easing will be