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The euro fell to a fresh four-year low against the dollar in Asia Wednesday.
Written by article default Wednesday, 19 May 2010 07:35
Market OverviewThe euro fell to a fresh four-year low against the dollar in Asia Wednesday, as investors in the region dumped the common currency on the view that new German financial regulations will complicate managing the risk of holding the currency.
The new rules announced overnight may make both short- and long-term investors increasingly eager to further trim their euro holdings. The regulations are also likely to weigh on European equities later in the global day, further hurting the risk-sensitive currency, dealers said.
In morning trade in Tokyo Wednesday, the euro dropped to USD1.2143, its lowest level since April 17, 2006. While bargain hunting could support the euro at USD1.2125 for the rest of the global day, mounting concerns over the euro-zone's fiscal and economic outlook could drag the currency to USD1.2000 in the coming weeks, traders said.
Developments in the market for euro options also underscored increasing concern over further euro falls. The price of euro option contracts spiked Wednesday, reflecting expectations that the common currency will slide more.
The euro was down against the yen, considered a safe haven in times of market distress. The common currency stood at YEN112.16 compared with YEN112.75.
The greenback also strengthened against the British pound. Hurt by lingering concern over the U.K.'s own fiscal and economic problems, sterling dropped to USD1.4238, its lowest since March 30, 2009. Some market speculation holds that sterling could revisit its January 2009 low of USD1.3500 this summer.
The Australia dollar slumped to a nine month low in Asia after Germany's move to curb naked shorting of credit default swaps rattled investor confidence and helped send longer dated Australian bond yields to their lowest point this year.
Market expectation
The U.S. unit might fall to YEN1.20 later in the global day, as investors buy the safe-haven yen on concerns that Europe's lingering fiscal woes could reduce liquidity in global financial markets, said analysts.
Many currency-market watchers are growing increasingly jumpy that central bank reserve managers some of the biggest investors in the world could be having second thoughts about their euro holdings as the European debt crisis highlights ugly flaws in the currency's structure.
The proposal limits the options of investors looking to express a negative view on the euro zone, said analysts.
If investors cannot short German banks, euro-zone sovereign debt or insurance to protect against default on that debt, the proposal may channel more investors and speculators to express a negative view in the currency.
Still, the ban is largely symbolic because most of the naked short-selling and trading of insurance on sovereign default takes place in London, outside the German regulator's jurisdiction.