SYDNEY (Reuters) - The euro remained under pressure on Friday, a day after notching its biggest monthly fall against the dollar in nine months, with risk appetite hurt by political uncertainty in Italy and U.S. government spending cuts that are due to kick in.
Investors are also likely to take their cue from a batch of Asian data on Friday, including inflation data from Japan, South Korea’s trade figures and a survey on China’s manufacturing sector. Any disappointment in these reports could further dampen risk appetite.
Following a choppy session driven by month-end positioning, the euro was at $1.3057, back near a seven-week trough of $1.3018 plumbed earlier in the week. A break below there would bring into focus the 2013 low of $1.2998.
The euro lost about 4 percent against its U.S. peer in February, its biggest monthly slide in nine months.
Traders said benign inflation data on Thursday gave the European Central Bank room to cut interest rates, which further diminished the allure of the euro.
“Our economists have revised their view and now expect a 25 basis point cut in the ECB’s refi rate either next week or in April,” said Vassili Serebriakov, a strategist at BNP Paribas.
Serebriakov said this suggested downside risks for the euro and the bank’s EUR/USD long trade recommendation, established at 1.3180, with a stop-loss at 1.2980.
“However, we would argue that a refi rate cut would probably be least damaging for the euro, as compared to other potential forms of easing such as cutting the deposit rate to negative.”
The common currency had been given a slight reprieve mid-week when a relatively smooth Italian government bond auction helped offset unease about an inconclusive election result.
But comfort from Italy’s successful bond sale was fast fading on concerns that sweeping budget cuts worth $85 billion across U.S. federal government agencies will hit growth in the world’s biggest economy.
The International Monetary Fund has said it will likely cut its U.S. and global growth forecasts if those automatic spending cuts take effect on Friday, and warned that the U.S.’s biggest trading partners would be hardest hit.
Not surprisingly, investors gave commodity currencies a wide berth, knocking the Australian dollar down towards $1.0200 from a high near $1.0300. It was last at $1.0213.
The yen, usually bought in times of heightened market stress, continued to underperform a day after Prime Minister Shinzo Abe nominated an advocate of aggressive policy action to head the Bank of Japan.
The dollar bought 92.61 yen, extending a recovery from this week’s fall to 90.85 and heading back towards a 33-month peak of 94.77 set on Monday.
The euro, however, saw its recovery against the yen stall. It was at 120.90 yen, off its overnight high of 121.82.
Editing by John Mair