April 24, 2013 / 6:26 AM / 5 years ago

FOREX-Euro steady vs dollar, remains vulnerable as focus turns to German Ifo

* Focus on Ifo survey after weak flash PMI for Germany

* Talk of ECB rate cut keeping lid on euro vs dollar

* Aussie sags on softer-than-expected inflation data

* Dollar/yen stays below elusive 100 level

By Masayuki Kitano

SINGAPORE, April 24 (Reuters) - The euro held steady on Wednesday, clinging above a two-week low set the previous day, but the single currency could face more selling pressure as soft euro-zone data has bolstered expectations of an interest rate cut by the European Central Bank.

The euro was fetching $1.3002. The single currency had hit a two-week low of $1.2973 on Tuesday in light of a survey showing a sharp drop in German business activity in April.

The Munich-based Ifo think tank’s survey of German business morale for April due later on Wednesday is the market’s next focus.

“If the Ifo is weak that could provide further data-based validation for the recent speculation that there might be a rate cut in May,” said a trader for a Japanese bank in Bangkok, referring to market chatter about a possible ECB rate cut.

“If it turns out to be weak, the market reaction could be pretty large,” the trader said, adding that market players seemed to be focusing on signs of economic weakness in Germany.

The downbeat reading of German business activity in Markit’s flash composite Purchasing Mangers’ Index (PMI), released on Tuesday, had driven projections of key euro zone bank-to-bank Euribor lending rates for 2015 and 2016 to record lows, as traders increased bets that the ECB may cut interest rates and keep them low for a long time.

In addition, recent comments from ECB policymakers about slowing inflation and poor growth prospects in the euro zone suggested the central bank may be leaning towards a cut in its main refinancing rate, which stands at a record low 0.75 percent.

One factor that may temper any market reaction in the event of a weak Ifo reading is the fact that the euro has already priced in the possibility of an ECB rate cut to some degree, said Mitul Kotecha, Hong Kong-based head of global foreign exchange strategy for Credit Agricole.

“Markets have moved around to the view that the ECB will cut rates. We’re looking for a cut in May. So to some extent the euro is pricing that in,” Kotecha said.

“The momentum I still think is for a lower euro, but I don’t see a slide in the currency,” he said, adding that one possible short-term support for the euro lies at the April 8 intraday low of $1.2962.

Although the euro has retreated against the dollar from last week’s high near $1.3200, the single currency has climbed on some of the crosses in recent sessions, and hit a one-month high versus the Swiss franc on Wednesday.

Against the yen, the euro was little changed at 129.32 yen .

The dollar was steady at 99.48 yen, having pulled back from the day’s high of 99.77 yen.

A trader for a Japanese bank in Bangkok said yen-buying by options players, institutional investors as well as Japanese exporters blocked the dollar’s earlier rise and prevented it from reaching the elusive 100 yen level.

The greenback had scaled a four-year high of 99.95 yen earlier this month after the Bank of Japan unveiled its sweeping monetary stimulus programme.

The Australian dollar fell 0.2 percent to $1.0252, staying heavy after softer-than-expected inflation data encouraged investors to wager on a further cut in Australian interest rates.

The New Zealand dollar found support after the Reserve Bank of New Zealand gave a relatively upbeat assessment on the economy.

As expected the RBNZ left interest rates at a record low 2.5 percent and said they would stay there for the rest of the year.

The New Zealand dollar last stood at $0.8445, off a three-week low of $0.8360 tapped on Tuesday.

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