January 16, 2013 / 3:25 PM / 5 years ago

FOREX-Euro skids versus dollar a second day; yen fares well

* ECB’s Nowotny reassures market after Juncker comments

* U.S. inflation data does little to sway sentiment

* Dollar/yen under pressure from profit-taking

By Julie Haviv

NEW YORK, Jan 16 (Reuters) - The euro slumped against the dollar on Wednesday for a second straight session as soothing comments about the currency’s recent strength made by a European Central Bank policymaker gave way to profit taking and concerns about the region’s economy.

The euro briefly turned positive after ECB member Ewald Nowotny said the exchange rate was “not a matter of major concern”, a strong contrast to comments from Eurogroup head Jean-Claude Juncker who on Tuesday prompted investors to sell the euro by saying it was “dangerously high”.

The euro last traded at $1.3274, well below an 11-month high of $1.3403 reached on Monday.

“Nowotny’s comments temporarily supported the euro, but that faded quickly as positive earnings in the U.S. supported the U.S. growth outlook story and contrasted what is going on in the euro zone,” said Camilla Sutton, chief fx strategist at Scotiabank in Toronto.

Weak economic data from Europe highlighted a disparity with the U.S. economy, which has been recovering, albeit not fast enough to change the Federal Reserve’s policy.

Demand for new cars in Europe fell to a 17-year low in 2012.

and even the German economy is suffering from the euro zone recession.

If economic data continues to weaken the ECB may opt to cut rates, a negative for the euro.

Muted inflation pressures in the U.S., however, should give the U.S. Fed more room to prop up the economy by staying on its ultra-easy monetary policy path. U.S. consumer prices were flat in December.

The euro had rallied smartly in the days following last week’s ECB meeting. ECB President Mario Draghi downplayed expectations of another rate cut and painted a more positive outlook for the euro zone economy.

Some analysts said the euro could struggle to move higher given the poor growth outlook for the region.

“Of course, the euro has momentum, but there are risks of slippage in the euro zone given the outlook for growth is weak and there is always a chance Italy and Spain can miss their deficit targets, ”said Neil Mellor, currency strategist, at Bank of New York Mellon.

YEN GAINS AGAIN

The euro had climbed to its highest in 20 months earlier this week after the ECB dashed expectations of a near-term rate cut and the yen weakened as Japanese officials ramped up pressure on the Bank of Japan to ease monetary policy aggressively and weaken the currency.

However, a correction in the yen gained sharply for a second straight session against the dollar in the aftermath of Japan’s Economics Minister Akira Amari comments on Tuesday in which he cautioned that excessive yen weakness could boost import prices and hurt people’s livelihood.

The dollar last traded at 88.32, down 0.5 percent on the day. Traders cited supporting bids at 87.70/80 yen.

The euro also fell against the yen to last trade down 0.7 percent on the day 117.28.

Many traders called the yen’s strength a healthy correction, given the yen has lost substantial ground since in recent months and hit a 2-1/2 year low of 89.67 on Monday.

A rising currency hurts exports and major central banks, including the Federal Reserve, the Bank of England and the Bank of Japan, have been printing money in an attempt to keep the value of their currencies lower by increasing supply.

Investors have put on big bets against the currency with the new government in Tokyo very vocal about pressing the BOJ to tackle deflation, calling for a 2 percent inflation target.

The BOJ is widely expected to agree to such a target at its policy meeting on Jan 21-22, although some traders said there could be buy-on-rumour-sell-on-fact selling in dollar/yen afterwards.

“I haven’t come across anyone who seriously thinks that the BOJ can boost inflation to 2 percent,” said Takako Masai, head of forex at Shinsei Bank, adding that the BOJ meeting could offer a good chance to exit bearish bets on the yen.

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