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FOREX-Euro rises versus dollar; gains seen short-lived
May 24, 2011 / 4:14 PM / 7 years ago

FOREX-Euro rises versus dollar; gains seen short-lived

 * Euro off 2-month low but struggles to hold above $1.40
 * Euro helped by stabilizing German business sentiment
 * Euro zone debt crisis casts cloud over currency
 (Adds quote, detail, updates prices)
 By Wanfeng Zhou
 NEW YORK, May 24 (Reuters) - The euro edged up from a
two-month low against the dollar on Tuesday lifted by
better-than-expected German data but gains could be short-lived
given nagging fears about Europe's spreading debt crisis.
 German business sentiment held steady in May, the Ifo think
tank said, confounding expectations for a third consecutive
monthly fall. The data pushed the euro back above $1.4100
EUR=, away from Monday's two-month low of $1.3968. For more
see [ID:nLDE74N0T6].
 Although the euro was holding above $1.4000, analysts said
it was vulnerable to a break lower. Worries that Greece may
have to restructure its debt and fears of contagion to bigger
economies like Spain and Italy have hit the euro hard lately,
pushing the currency down more than 5 percent since early May.
 "The problem still remains in the peripheral markets," said
Samarjit Shankar, managing director of global FX strategy at
BNY Mellon in Boston. "Global portfolio managers remain net
sellers of peripheral euro zone debt instruments such as
Greece, Portugal, Italy and Spain."
 The euro last traded at $1.4108, up 0.4 percent on the day,
after rising to $1.41338 on trading platform EBS EUR=EBS.
 It earlier pared gains after the leader of Greece's
conservative political opposition rejected the government's new
package of fiscal measures to slash deficits. [ID:nATH006097]
 Greece will not be able to honor its obligations if it does
not get the next tranche of a bailout loan and the IMF has made
clear it cannot disburse the money if Greece's 2012 EU funding
is not assured, the country's finance minister said on Monday.
[ID:nLDE74M21J]
 Greece faces a 13.4 billion euro ($18.85 billion) funding
crunch next month.
 Any Greek debt restructuring plan would open the door to
euro selling towards $1.30, analysts said, by hitting European
banks and private investors and raising questions about the
euro zone's overall credit-worthiness. [ID:nLDE74N0U1]
 Traders reported stop-loss orders from $1.4125, with more
around Monday's high of $1.4146. Support is seen around the
100-day moving average at around $1.3975. The euro has traded
above its 100-day average since February.
 Against the yen, the dollar rose 0.2 percent to 82.13 yen
JPY=. The U.S. dollar index, which measures the greenback
versus a basket of currencies, slipped 0.2 percent to 75.913
.DXY, near a seven-week high set on Monday.
 CONTAGION RISK
 A Greek debt default would hurt other peripheral euro zone
states and could push Portugal and Ireland into junk territory,
Moody's said on Tuesday, warning it would classify most forms
of restructuring as a default. [ID:nLDE74N0AQ]
 Fears of contagion mounted after ratings agencies
downwardly revised outlooks for Italy and Belgium, while
Spain's ruling Socialist Party lost in regional elections,
raising doubts about Madrid's commitment to fiscal austerity.
 "(Spain's) proposed budget cuts had kept the region's
fourth-largest economy off the debt crisis radar until now,"
said James Percival, market strategist at Western Union
Business Solutions in Victoria, British Columbia.
 "Traders now fear this is a sign of things to come, as a
national-level electoral turnaround that undoes the austerity
measures in Spain, or an outright rating cut in Italy,
threatens to bring about a crisis in a country too big to be
rescued."
 Spain has come under intense market scrutiny in recent
days, though it sold 2.3 billion euros of short-term debt
easily on Tuesday with borrowing costs largely unmoved from the
last auction.
 The New Zealand dollar gained more than 1 percent to
$0.8017 NZD=D4 after a quarterly survey on behalf of the
Reserve Bank of New Zealand showed inflation expectations in
the country rose in the second quarter. [ID:nL3E7GO06Y]
 The Australian dollar was up 0.5 percent to $1.0557
AUD=D4, off a one-month low of $1.0478 hit on Monday.
 (Editing by James Dalgleish)


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