April 5, 2012 / 4:12 PM / 5 years ago

FOREX-Euro under pressure, breaks SNB's 1.20 franc floor

* Euro hits 3-week lows versus dollar
    * Spanish yields rise after Wednesday's bond auction
    * SNB steps as euro dips under 1.20 francs floor


    NEW YORK, April 5 (Reuters) - Concerns about Spain's high
debts drove the euro down broadly on Thursday, pushing it to a
three-week low against the dollar and  spurring the Swiss
National Bank to act to rein in the franc's strength.	
    Spanish borrowing costs rose as investors, following a poor
debt auction on Wednesday, became increasingly nervous about the
country's ability to meet budget targets that could mark another
escalation of the euro zone debt crisis. 	
    The SNB moved after the franc broke through a ceiling the
bank had set last year against the euro zone common currency.	
    A U.S. government report showing the number of Americans
lining up for new jobless benefits fell to the lowest in nearly
four years last week added to the dollar's allure against the
euro.   	
    The U.S. outlook was in sharp contrast with Europe where
separate reports showed German industrial output fell more than
expected in February and British factory output suffered its
biggest monthly fall in almost a year 
 	
    "Bad numbers out of Germany and the UK gives you a weaker
euro," said Joseph Trevisani, chief market strategist at
Worldwide Markets in Woodcliff Lake, New Jersey. "It pushes the
ECB to the necessity of supporting the economy again, which in
this case means more access to cheap money." 	
    Against the dollar, the euro was down 0.6 percent at
$1.3064, having hit a three-week low of $1.3033. It also hit its
lowest in four weeks against the yen at 106.86 yen
before recovering to trade at 107.45 yen, still down 0.8
percent. 	
    	
    SNB BUYS	
    Broad euro selling saw the euro zone single currency dip
below 1.20 Swiss francs for the first time since the SNB set
that level as a cap for the Swiss currency in September 2011 in
a bid to curb a sharp rise caused in part by investors fleeing
the euro.	
    The euro hit a low of 1.1992 francs, according to
Reuters data, before recovering, with traders saying the SNB was
seen buying euros around 1.20. An SNB spokesman said the bank
would do all it could to defend the cap. 	
    It recovered to last trade at 1.2020 francs, down 0.1
percent. Traders said the SNB's determination may make investors
wary of testing their resolve again, but renewed euro zone debt
worries may mean the central bank will have to step in again.	
    "Until now the market has been doing the SNB's work for it
if there was any dip towards the 1.2000 level, buying any dip as
they believed the downside to be limited because they assumed
the SNB would aggressively defend it," said Richard Wiltshire,
chief FX Broker at ETX Capital in London.	
    "If this mood ceases to prevail then market forces may
dictate they have to get involved again."	
    Earlier in the day, RBC Capital Markets said the Swiss
National Bank had bought about 1 billion euros against the
franc.	
    Given the SNB's reserves are 50 percent in euros, 25 percent
in dollars, 9 percent in yen, 5 percent in sterling, 4 percent
in the Canadian dollar and 4 percent in other currencies, the
bank said half that 1 billion euros can stay in euros but the
rest will have to be recycled into the other reserve currencies
in the same proportions.    	
	
    EURO WOES	
    The renewed rise in Spanish government bond yields followed
Wednesday's poorly received debt auction, with traders worrying
that the positive impact from the European Central Bank's two
low-interest, three-year funding extravaganzas may be coming to
a screeching halt.	
    "If we continue to see Spanish yields pushing out, the euro
should broadly come lower and I'm happy to stick with a short
position for now, looking to take profit near $1.3000," said
Jeremy Stretch, head of currency strategy at CIBC in London	
    "There's a realization that structurally the periphery of
Europe remains under extreme stress."	
    After holding interest rates at a record low of 1.0 percent
on Wednesday, European Central Bank President Mario Draghi said
downside risks to the economic outlook "prevailed" and dismissed
talk of an exit strategy from accommodative policy measures. 	
 
 	
    Traders reported thin market conditions ahead of the Easter
holidays and the U.S. March nonfarm payrolls report on Friday.  	
    The U.S. economy is expected to have added 203,000 jobs last
month after February's 227,000 increase.

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