FOREX-Downbeat ECB knocks wind out of euro bulls

Fri Dec 7, 2012 4:18am IST

Priyanka Gandhi Vadra, daughter of Congress party chief Sonia Gandhi, adjusts her flower garlands as she campaigns for her mother during an election meeting at Rae Bareli in Uttar Pradesh April 22, 2014. REUTERS/Pawan Kumar

Election 2014

More than 814 million people — a number larger than the population of Europe — are eligible to vote in the world’s biggest democratic exercise.  Full Coverage 

* Euro hit hard across the board

* ECB pondered rate cut, sees economy shrinking next year

* U.S. jobs data next event risk

By Ian Chua

SYDNEY, Dec 7 (Reuters) - The euro languished at one-week lows against the greenback on Friday, having suffered a major setback after the European Central Bank painted a bleak outlook for the euro zone and discussed cutting interest rates.

The single currency fell nearly 1 percent to $1.2950, posting its biggest one-day loss in a month and retreating from a seven-week peak of $1.3127 set mid-week.

"The main trigger for the sharply negative euro reaction was the mention of a 'wide' discussion over rate cuts, while Mr. Draghi also said the ECB was 'operationally ready' for negative rates," said BNP Paribas strategist Vassili Serebriakov.

ECB President Mario Draghi said policy makers talked about cutting its main 0.75 percent policy rate before opting to leave it on hold, even as it slashed forecasts for growth. It also touched on the idea of cutting its deposit rate into negative territory.

The euro was last at $1.2967, with immediate support seen around $1.2949, a level representing the 38.2 percent retracement of its Nov 13-Dec 5 rally.

Against the yen, the euro was also nearly 1 percent lower at 106.81. It suffered losses of more than 1 percent versus the Australian and New Zealand currencies.

The slid in the euro helped push the dollar index up 0.6 percent to 80.237, rebounding from a six-week trough plumbed mid-week.

Traders said any follow-through euro selling in Asia may be limited ahead of U.S. non-farm payrolls report due 1330 GMT. Analysts polled by Reuters expect a sharp slowdown in employment growth due to the disruption caused by superstorm Sandy.

"We may see the reserve currency consolidate over the next 24-hours of trading as job growth in the world's largest economy is expected to expand at a slower pace," said David Song, currency analyst at DailyFX.

Any weakness in the closely watched report would also reinforce expectations that the Federal Reserve will announce a new round of Treasury bond purchases to replace its expiring Operation Twist programme at next week's meeting.

Such action could keep investors from getting too enthusiastic about the greenback.

Meanwhile, the Australian dollar showed little sign of backing down after a surprisingly firm employment report on Thursday prompted markets to trim chances of an interest rate cut at the Reserve Bank of Australia's next meeting in February.

The Aussie reached $1.0515, a high not seen since September, before profit-taking took it down a notch to $1.0478. It's resilience is remarkable given this week's interest rate cut and a slew of data pointing to a less rosy outlook for the local economy.

Trade data due at 0030 GMT will probably support the view of slower growth, with analysts expecting a wider trade deficit of A$2.05 billion in October.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

REUTERS SHOWCASE

Election 2014

Election 2014

Kashmiris wary as Modi challenges for power.  Full Article 

Facebook's Performance

Facebook's Performance

Facebook Q1 revenue grows 72 percent on rising mobile ads.  Full Article 

Earnings Season

Earnings Season

Bharti Infratel Q4 net profit jumps 64 percent.  Full Article 

Monsoon Forecast

Monsoon Forecast

South Asia monsoon seen below-average to average in 2014 - WMO.  Full Article 

Solar Dispute

Solar Dispute

Green groups urge U.S. to drop solar trade case against India.  Full Article 

Oil Imports

Oil Imports

India to make May-July oil payments to Iran - sources.  Full Article 

Rice Exports

Rice Exports

India may cede top rice exporter spot under Southeast Asian price onslaught.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage