FOREX-Euro hovers near six-week low vs dollar on ECB easing bets

Reuters

* Euro hits lowest since Sept. 18, implied vols rise

* ECB meeting on Thursday key for common currency

* Aussie dollar up after firm retail sales

By Anirban Nag

LONDON, Nov 4 (Reuters) - The euro struggled near a six-weeklow on Monday, as investors and speculators sold the singlecurrency on mounting expectation that the European Central Bank(ECB) may loosen policy in the near term.

The euro skidded to as low as $1.3442 on trading platformEBS, its lowest level since Sept. 18 in thin trade in Asia. Itlater trimmed its losses and was last flat on the day at$1.3495, well below a two-year high of $1.3833 struck on Oct.25.

The sharp sell-off in the euro, which shed more than 2percent last week, triggered a rush to hedge against furtherweakness. The one-month euro/dollar implied volatility, a gauge of how choppy a currency will be, jumped toits highest in two months at 7.525 percent.

Traders said the euro is likely to stay under pressurebefore the ECB's policy meeting on Thursday. After data lastweek showed a plunge in euro area inflation, a growing number ofbanks, including UBS and RBS analysts, believe that a cut in therefinancing rate could come as soon as Thursday.

The ECB's refinancing (refi) rate is at a record low of 0.5percent.

"The market is pricing in a risk of some action from the ECBthis Thursday, perhaps a bit ambitiously. We remain of the viewthat the euro will continue to struggle and investors will fadeinto rallies," said Jeremy Stretch, head of currency strategy atCIBC World Markets.

"The bias remains for it to ease as markets drive the ECB toaddress disinflationary pressures building in the euro zone."

A second reading of PMI surveys out of the euro zone islikely to confirm that the pace of recovery, especially in theservice sector, may have lost some momentum.

"Even if a refi rate cut is not delivered by the ECB thisweek, it is likely that President Mario Draghi will deliver moredovish rhetoric, setting up a rate cut at their next meeting,"Lee Hardman, currency analyst at Bank of Tokyo Mitsubishi UFJ,wrote in a note.

Pressure on the euro lifted the dollar to a six-week highversus a basket of major currencies. The dollar index rose to80.930 in Asia, its highest level since Sept. 18. It laststood at 80.652, flat on the day.

The timing of the euro's drop against the dollar in Asiaseemed to roughly coincide with comments from Federal ReserveBank of Dallas President Richard Fisher.

Speaking at a conference of business economists in Sydney,Fisher said he was concerned that corporate credit spreads havenarrowed too much and added that he does not see the Fed'sbalance sheet rising to $6 trillion or more.

The Australian dollar edged higher, supported by strongerthan expected retail sales. Another factor supporting the Aussiedollar was upbeat Chinese data on Sunday showing China'sservices sector expanding at its fastest pace in 13 months inOctober.

The Australian dollar rose 0.7 percent to $0.9500,edging away from Friday's three-week trough of $0.9421.

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