FOREX-Euro weak as outlook sours, U.S. jobs data in focus

Fri Dec 7, 2012 5:56pm IST

* Euro falls to nine-day low vs dollar
    * Bundesbank cuts 2013 German GDP growth forecast to 0.4 pct
    * Strong earthquake in Japan briefly lifts yen
    * U.S. job data at 1330 GMT next focus for market

    By Anooja Debnath
    LONDON, Dec 7 (Reuters) - The euro fell to a nine-day low
against the dollar on Friday after the Bundesbank slashed its
growth outlook for Germany, with the currency at risk of more
losses on prospects of a euro zone rate cut.
    The yen briefly rose after a strong earthquake struck
north-east Japan, triggering a one-metre tsunami. A far more
powerful earthquake in March 2011 led to a sharp rise in the yen
on expectations Japanese investors would repatriate funds held
abroad. 
    The euro was down 0.4 percent at $1.2925, having hit
a low of $1.2915, its 55-day moving average, as it retreated
further from a seven-week peak of $1.3127 hit on Wednesday.
Traders cited some bids below $1.2910. A drop below its 55-day
moving average could see it target the Nov. 28 low of $1.2880.
    The latest drop came as Germany's central bank said it
expected Europe's largest economy to grow just 0.4 percent in
2013, and pointed to risks of a recession as the euro zone debt
crisis takes its toll. 
    The euro had lost around one percent on Thursday after
European Central Bank President Mario Draghi said policymakers
had discussed cutting borrowing costs and pushing the deposit
rate into negative territory. 
    "The discussion on (negative) interest rates is what started
the slide in the euro in the last 24 hours and the Bundesbank
report has just compounded that," said Neil Mellor, currency
strategist at Bank of New York Mellon.
    The deposit rate is the rate the ECB pays for money banks
park at the central bank. A negative rate would decrease the
appeal of holding euros.
    Against the yen, the euro was down 0.4 percent at 106.45 yen
, well below a seven-month high of 107.96 yen hit on
Wednesday.
    
    U.S. EMPLOYMENT DATA
    The dollar was flat on the day at 82.32 yen after
hitting a session low of 82.175 yen after news of the earthquake
in Japan. The earthquake triggered a Tsunami warning which was
later lifted.  
    "It is just a knee-jerk reaction," said Derek Halpenny,
European Head of Global Currency Research at bank of Tokyo
Mitsubishi. "It is not likely to be as significant (as the
earthquake of March 2011)."
    Traders said further moves in the currency market were
likely to be limited before U.S. non-farm payrolls data due at
1330 GMT. Analysts polled by Reuters expect a sharp slowdown in
employment growth due to the disruption caused by hurricane
Sandy. 
    A sharp deterioration in the U.S. labour market would pile
more pressure on the Federal Reserve to step up its quantitative
easing programme. The Fed meets next week and expectations are
it will keep buying a combined $85 billion of Treasuries and
mortgage-backed bonds a month, while repeating that it expects
to hold rates near zero until at least mid-2015. 
    Economists expect U.S. non-farm payrolls to have risen only
93,000 last month after October's 171,000, according to a
Reuters survey of economists. 
    "A soft employment report and associated dovish Fed talks
may provide an opportunity to start focusing on a dollar bearish
theory; even if it could actually take another couple of
sessions for the market to fully digest the Draghi rate cut
story," BMO Capital Markets said in a note.
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