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FOREX-Euro at 2-year low vs firmer dollar; yen shines
July 12, 2012 / 11:33 AM / 5 years ago

FOREX-Euro at 2-year low vs firmer dollar; yen shines

* Euro slides to 2-year low vs dollar on risk aversion
    * Yen rises as BOJ refrains from new easing steps
    * Weak data pushes Australian dollar down sharply

    By Anirban Nag
    LONDON, July 12 (Reuters) - The euro fell to a two-year low
against a broadly firmer dollar on Thursday after the minutes of
a Federal Reserve meeting dampened the prospects of more U.S.
monetary stimulus in coming months, weighing on riskier assets
and growth-linked currencies.
    The safe-haven yen also advanced after the Bank of Japan
limited itself to tweaking its asset buying programme rather
than easing monetary policy outright in contrast to last week's
policy easing moves by central banks in the euro zone, Britain
and China.
    With speculators and long term currency investors worried
about Europe's lack of progress in tackling its debt crisis, the
euro fell to $1.21725, its lowest since mid-2010, and
past a reported options barrier at $1.2200. 
    Traders reported more option barriers down to $1.2000 which
could slow the euro's drop. Nonetheless, Europe's debt woes, the
European Central Bank's (ECB) decision to cut interest rates and
Wednesday's minutes from the Fed's June meeting all helped the
dollar index to a two-year high of 83.796.
    "Every single central bank except for the Fed is easing, and
until that happens we expect the dollar to stay supported," said
George Saravelos, G-10 currency strategist at Deutsche Bank.
    "The euro is likely to weaken further as it will be hurt by
the ECB's decision to cut the deposit rate and there will be a
shift in funding."
    The euro has shed 5.7 percent so far this year, already
exceeding the losses it chalked up in 2011, with losses
accelerating after last week's cut by the ECB. 
    The unprecedented cut in the deposit rate meant that banks
will earn nothing for parking excess funds. Besides, the zero
rates would encourage investors to sell the low-yielding euro
and buy higher-yielding riskier currencies. 
    Lee Hardman, currency strategist at Bank of Tokyo Mitsubishi
said since the ECB cut its deposit rate to zero, the euro had
become "the funding currency of choice" for higher-yielding
assets. He added that this left the euro vulnerable in times of
both improving and deteriorating market sentiment.
    Traders expect 800 billion euros that banks used to park
with the ECB would start leaving the euro zone in the hunt for
better yields. Indeed, data published by the ECB showed banks
parked 325 billion euros overnight, well down on both the 800
billion they left there the previous day. 
    
    FED MINUTES BOOSTS DOLLAR
    The Fed minutes showed the U.S. economy would have to worsen
further before policymakers took any more easing steps.
 
    The dollar's overall strength saw it hit a 19-month high
against the Swiss franc of 0.98560 francs on the EBS
trading platform.
    Data showing an unexpected drop in Australian employment in
June also added to worries about the outlook for global growth,
increasing risk aversion and causing the higher-yielding
Australian dollar to fall sharply. 
    The Australian dollar fell more than 1 percent
against the U.S. dollar to hit a two-week low of US$1.0112. It
fell nearly 2 percent against the yen to 80.17 yen.
    The Bank of Japan held its policy rate in a range of zero to
0.1 percent, though it did tweak its asset-buying and lending
programme. It maintained the total size at 70 trillion yen but
said it would buy more short-term securities and reduce the
amount it offers under fixed-rate market operations.
 
    The yen gained broadly, quickly erasing brief falls
immediately after the decision. The dollar was down 0.6
percent at 79.24 yen, holding above chart support at the 200-day
moving average around 79.01 yen.
    "The BOJ was widely expected not to do anything at all, and
when they did something, there was an initial reaction to it,
but the move was short-lived as the forex market assessed the
net effect of the bank's technical changes," said Kimihiko
Tomita, head of FX at State Street Global Markets in Tokyo.
    Governor Masaaki Shirakawa said on Thursday the BOJ would
not automatically link its policy with that of other central
banks. 
    The euro fell 1 percent to hit a 5-week low
against the yen of 96.560 yen, falling past stops at 95.75 yen.

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