* Euro at nine-month low vs dollar
* Dollar index hits 11-month peak
* Sterling hit by weak industrial data
* NATO says concerned about threat of Russia entering
By Jemima Kelly
LONDON, Aug 6 The euro fell to a nine-month low
against the dollar on Wednesday as Italy reported it had fallen
back into recession in the second quarter, German data showed
industrial performance slumped in June and concern grew over
conflict in Ukraine.
The dollar rose to an 11-month high against a basket of
major currencies, boosted by a move by investors away from
currencies seen as higher-risk, amid reports Russian troops had
gathered on the Ukrainian border.
Around 20,000 Russian troops massed on Ukraine's eastern
frontier were creating a "dangerous situation", NATO said on
Wednesday. It warned that Moscow could use humanitarian concerns
as a pretext to send troops across the border.
That, as well as the data showing Italy's economy
unexpectedly shrank in the second quarter, drove the euro as low
as $1.3333, its lowest since early November.
"It's difficult for some investors to be short Russia,
because of liquidity reasons, which effectively encourages proxy
selling of euros as concerns grow about a further escalation of
those tensions between the West and Russia," said Valentin
Marinov, head of European G10 currency strategy at Citigroup.
"All of this is adding to the headwinds of an already weak
recovery in the euro zone, encouraging bets on more aggressive
European Central Bank easing, weighing on the euro."
German industrial orders fell at their steepest rate in
almost three years in June. One reason seemed to be companies
becoming more cautious about taking on contracts as geopolitical
tension escalated. Another was weaker euro zone
"Germany is very heavily linked to Russia on a trade basis,
so given the trade sanctions that are now being put in place,
Germany is going to be one of the countries that is hardest hit
by that," said Ian Stannard, head of European currency strategy
at Morgan Stanley in London.
"If we're in a position where activity data was softening
already, and that's likely to be hit further by sanctions,
that's going to leave the euro in quite a vulnerable position
Long considered thought to be underperforming, the dollar
has gained more than two percent against a basket of major
currencies since early July. It climbed to an 11-month peak of
81.716 on Wednesday.
Data on Tuesday showed U.S. services sector activity reached
an 8 1/2-year high last month and factory orders surged in June,
bolstering expectations of solid economic growth in the third
"We're back into the medium-term trend, which is for a
higher dollar," said Jesper Bargmann, head of trading for Nordea
Bank in Singapore.
Sterling slipped after the UK reported that industrial and
manufacturing output grew less than expected in June, cooling
expectations that the Bank of England will raise interest rates
The pound slid to a day's low of $1.6821 before recovering
slightly to $1.6830, down a third of a percent.
A two-day meeting of the BoE's rate-setting Monetary Policy
Committee begins on Wednesday. Markets will have to wait until
later in the month to see whether any of the committee's nine
members now favour a rise in rates.
The New Zealand dollar skidded to a two-month low after milk
prices fell again at an auction held by Fonterra Co-operative
Group, the world's biggest dairy exporter. It was last down 0.3
percent at $0.8445.
(Additional reporting by Masayuki Kitano in Singapore and Ian
Chua in Sydney; Editing by Larry King)