FOREX-Euro at two-month low vs dollar after ECB

Thu Nov 8, 2012 8:31pm IST

* Euro hits two-month low versus dollar, five-week low vs sterling

* ECB keeps rates unchanged, says growth to remain weak

* U.S. fiscal worries underpin safe-haven flows into dollar

By Wanfeng Zhou

NEW YORK, Nov 8 (Reuters) - The euro fell to a two-month low against the dollar on Thursday after the European Central Bank kept interest rates at a record low and said the euro zone economy shows little sign of recovering before the year-end.

In a press conference following the bank's decision to keep rates at 0.75 percent, ECB President Mario Draghi also said policymakers have not discussed plans for next year.

Recent weak euro zone data, which also showed weakness in Germany, had prompted speculation that the ECB may ease policy further before year end.

"The European economy needs to be revived. If the ECB will not do it, who will? The euro will continue to weaken because there is no recovery in sight for Europe and the rest of the world continues to slip," said Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake in New Jersey.

A media report that said Spain is edging away from asking for aid this year also drove speculators, already positioned for further weakness, to sell the shared currency aggressively. Earlier this week, Prime Minister Mariano Rajoy said conditions over a potential bailout were still being studied.

The euro slid to a two-month low of $1.2716 on Reuters data, the weakest since Sept. 7, before recovering to $1.2739, down 0.2 percent on the day. Traders said option-related buying was noted ahead of $1.2700 barriers.

The euro also hit a near four-week trough against the yen, dropping to 101.57 yen. The euro's losses helped take the dollar index to a two-month high of 81.001.

German exports slid at their fastest pace since late last year, figures showed on Thursday, adding to evidence that the crisis has begun to inflict a heavy toll on Europe's largest economy.

Investors were slightly encouraged by a Spanish bond auction which indicated reasonably healthy demand, although any rebound in the euro was seen as an opportunity to sell.

The euro fell to a five-week low against sterling at 79.605 pence and was last down 0.2 percent at 79.75 pence. The Bank of England left interest rates and its asset purchase programme unchanged.

The dollar index, which measures its performance against a basket of major currencies, extended the previous day's gains, as investors focussed on the "fiscal cliff" that is threatening to push the U.S. economy into a recession next year.

About $600 billion in government spending cuts and higher taxes will kick in early next year, unless U.S. lawmakers take steps to reduce the deficit.

The dollar has been helped by safe-haven inflows due to uncertainty stemming from the fiscal situation and some of those long positions could be unwound if a resolution is reached.

The dollar slipped 0.2 percent to 79.87 yen, staying below a six-month high of 80.67 yen set last week.

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