Euro breaks below $1.20

Reuters ^ | June 24, 2005

[RWR8189]

TOKYO (Reuters) - The euro fell below $1.20 for the first time in 10 months on Friday as traders bet that euro zone interest rates will eventually be cut and make the dollar an even more attractive destination for investors. A combination of Sweden's central bank slashing interest rates this week and the Bank of England moving closer to lowering rates has thrown the spotlight on the European Central Bank. ECB officials have held firm that current rates at 2 percent are appropriate, but political pressure has mounted on the euro zone's central bank to do something about the region's struggling economy.

Speculation about a rate cut has heated up in the wake of the French and Dutch "no" votes on the European Union constitution and the failure of EU leaders to settle on a long-term budget.

The euro spiked as low as $1.1981, according to data from electronic trading platform EBS. A large-lot sale of euros by a U.S. brokerage triggered stop-loss selling lined up around $1.20, dealers said.

The common currency bounced back to late New York levels around $1.2035 by 0547 GMT, though most analysts expect a relapse to below $1.20.

"I'd thought it was just a matter of time before the euro broke below $1.20," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. "I think the euro will spend more time below $1.20 than above that level next week."

With the Federal Reserve poised to keep raising U.S. rates, investors have flocked to the dollar for its yield appeal.

The next week will provide a key test of whether the euro will continue its 11 percent slide against the dollar in the past three months.

A heavy slate of U.S. data along with a Fed meeting will shed light on the economy's strength and outlook for more Fed credit tightening.

"We anticipate euro weakness may continue through the coming days," currency strategists at Morgan Stanley said in a note to clients.

The Fed is widely seen pushing up rates by a quarter percentage point after a two-day meeting ends on Thursday, taking it to 3.25 percent from 1 percent a year ago. Another such rate increase is expected at the Fed's August meeting.

ECB chief Jean-Claude Trichet will have a chance to clarify the central bank's monetary policy stance in a speech at 1300 GMT.

YET MORE YUAN TALK

Revived speculation that China will soon loosen the yuan's tight peg to the dollar also hammered the euro to a one-year low against the yen on Thursday.

Traders often snap up the yen as a proxy for any revaluation that would let the yuan appreciate.

The single currency straddled the 131 yen line for much of Tokyo trading hours. It dropped to the day's low around 130.80 yen on the euro's sharp fall versus the dollar, just above the one-year low near 130.60 yen.

Still, the yen has languished against the dollar around 109 yen, in sight of eight-month lows but trapped between the dollar's allure and euro's decline.

The Japanese currency fetched 108.95 per dollar stuck between 108 yen and 109.50 yen for the past two weeks.

China's yuan policy is set to be an ongoing topic for currency markets ahead.

Japan's finance minister, Sadakazu Tanigaki, said on Friday that the yuan would likely be a topic when he meets his Chinese counterpart over the weekend, the first bilateral meeting of the two countries' finance ministers in four years.

China's state-run Xinhua news agency reported on Thursday that the country's foreign exchange regime would likely be discussed when President Hu Jintao participates in the Group of Eight summit in Scotland on July 6-8.

[IronMan04]

You can forget about private property. The local Boss is on his way over to your house with a bulldozer so they can build a new Wal Mart.

CT's speculate but do so in with a vision of pure capitalism.

[Destro]

Just in time - I am spending a whole month in Europe.

You will be on your own next month, jb6 - fight the good fight!

[Erik Latranyi]

...but keep in mind that people India and China work 80+ hours weeks and are growing at rates that make our economy look anemic.

Totally irrelevant. In the late 70's and early 80's the Japanese had growth rates that made us look Third World. Where are they today?

I agree that deficit spending is bad, but our economy can handle the small size of our deficit easily.