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The euro fell to a fresh 14-month low against the dollar in Asia Thursday.
Written by article default Thursday, 06 May 2010 12:35
Market OverviewThe euro fell to a fresh 14-month low against the dollar in Asia Thursday as riots in Greece fueled investor concern that the nation can't implement fiscal reform steps smoothly and may face higher default risk.
Three people were killed during demonstrations in Athens Wednesday in protest against the government's spending-cut and tax-hike plans to avert national bankruptcy. Over the weekend, the government agreed to an EUR110 billion (USD141 billion) European Union and IMF debt bailout.
During Asian trading, non-Japanese Asian hedge funds and some Japanese institutional investors sold the euro. The single currency fell to USD1.2789, its lowest point since March 12, 2009.
Against the yen, the euro was higher at JPY120.47 from JPY120.12 in New York overnight as some Japanese importers bought the unit to settle their accounts after Japan's Golden Week holidays ended Wednesday.
The dollar, meanwhile, was higher at JPY93.93 from JPY93.66 in New York overnight due to buying by Japanese importers.
The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.131 from 84.102.
The Pound bounce to USD1.5174, the pair then tumbled below Tuesday's low of USD1.5090 to a five-week low against the dollar at USD1.5068 in NY morning. Although the latest polls were showing Tories might come closest to winning the parliamentary election on the coming Thursday, two polls were pointing to a 'hung parliament’, which would leave the country a government too weak to rein its budget deficit.
The Australian dollar was half a cent weaker in Asia on Thursday after retail sales disappointed and the ongoing Greek debt crisis prompted investors to sell riskier or high yield assets, driving bond futures higher.
Market expectation
The euro is likely to resume falling against the yen as well due to the Greece concerns, and any declines will likely be sharp, dealers said.
That is because many Japanese exporters and institutional investors place their exchange rate break-even point at JPY120, meaning they may rush to sell the euro anytime to secure profitability of assets in Europe.
Elsewhere, investors will continue to eye any developments in Greece after Wednesday's violent riots highlighted the lack of public support for austerity measures. Many market participants are now worried that Greece may not be able to implement the spending cuts it needs to carry out in return for a bailout package. Fears about debt contagion are also rife, particularly after Moody's placed Portugal's debt ratings under review Wednesday.
Looking ahead, the euro should resume falling, and it may fall to the next significant psychological level of USD1.260 in a few days, analysts said.
Locally, dealers will be watching the RBA's quarterly inflation and growth forecasts, due Friday, which will give guidance for the direction of policy in coming months.