February 14, 2013 / 3:05 PM / 5 years ago

FOREX-Euro plummets as dour data raises ECB rate cut talk

* Euro falls more than 1 percent against yen and dollar
    * Single currency drops as German and French economies
    * Euro zone economy contracts more than expected
    * Investors look to G20 meeting for 'currency war' talk

    By Julie Haviv
    NEW YORK, Feb 14 (Reuters) - The euro tumbled to a
three-week low against the dollar and plunged against the yen on
Thursday after data painted a dismal  picture of the euro zone's
economy, raising the chances of  European Central Bank monetary
policy action.
    Output in the 17 countries that share the euro slid by 0.6
percent in the last three months of 2012, more than the 0.4
percent decline expected in a Reuters poll and deepening
its recession. 
    The bloc's two largest economies, France and powerhouse
Germany, also shrank by more than expected in the final quarter,
casting doubt on forecasts of a recovery in early 2013.
    The German economy contracted 0.6 percent in the final
quarter of 2012, the worst performance since 2009, while
France's fell 0.3 percent, which was slightly worse than
    The odds of an ECB rate cut this year grew wider, according
to Joe Manimbo, senior market analyst at Western Union Business
Solutions in Washington D.C.     
    "Negatives have been on the rise in the euro zone ... in
addition to fresh economic jitters, investors are wary ahead of
Italy's national elections set for Feb. 24-25," he said.
    The euro last traded at $1.3342, down 0.8 percent
after earlier hitting a three-week low of $1.3313. That is well
below a one-week high of $1.3520 struck on Wednesday and far
away from its 15-month high of $1.3711 hit on Feb. 1.
    Support was cited at around $1.3260, its 55-day moving
average, with stop-loss sell orders below that. 
    Against the yen, the euro last traded at 124.38,
down 1 percent on the day, but above the session low of 123.98
    The euro's decline was "a periodic sell-off," said Neil
Mellor, currency strategist at Bank of New York Mellon. "People
will look to buy on the dip unless there is more bad data."
    Mellor said although the euro would not see a sustained fall
just yet, at some point this year it could show consistent
losses, judging by the fundamentals in the euro zone. 
    Peripheral euro zone countries have continued to struggle in
the face of tough austerity measures, with  Thursday's data
showing recessions in Italy, Portugal and Greece had worsened.
    The euro is up around 1.1 percent against the dollar and
about 8.7 percent against the yen this year, largely a result of
an improved appetite for risk and differing global central bank
    G20 IN FOCUS
    Investors will stay cautious on the euro given the risk of a
tough statement on currencies from a G20 summit in Moscow this
weekend. Speculation has continued that Japan might come under
pressure to slow the yen's slide.
    The Group of Seven nations said this week that fiscal and
monetary policies must be directed at domestic economies and not
at targeting exchange rates.
    But confusion reigned after a G7 official said the statement
was aimed at Tokyo, a comment that prompted the yen to surge on
a volatile foreign exchange market. Other G7 countries later
said it should be taken at face value. 
    Against the yen, the dollar, was down 0.2 percent at
93.18, well below a 33-month high of 94.42 hit on Monday. 
    The dollar briefly reacted to U.S. data showing the number
of Americans filing new claims for unemployment benefits fell
more than expected last week.  
    Earlier, the Bank of Japan kept policy steady as expected
and revised up its assessment of the Japanese economy. Some
believe the bank may hold off on expanding stimulus next month
and wait until its first rate review under a new governor,
scheduled for April 3-4. 
    "With Japan seemingly ground zero of any so-called currency
war, backlash could be headed Tokyo's way at this weekend's G-20
summit," said Western Union Business Solutions' Manimbo. 
    Although yen selling may be poised for a short term
reprieve, a bearish trend still appears intact over the medium
term and beyond," he said.
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