subject: FOREX-Euro tripped by debt woes [print this page] FOREX-Euro tripped by debt woes
Portugal's debt auction rekindles worries about fiscal problems.Kiwi under pressure after aggressive rate cut by RBNZTOKYO, March 10 (Reuters) - The euro steadied on Thursday off a one-week low, although its yield advantage, the main driver of its rally so far this year, is increasingly undermined by worries about how Europe will mend fiscal problems of severaleuro zone countries as the market looks to a European policy makers' meeting and stress tests on banks planned in the coming weeks.While euro zone interest rates continue to rise as investors price in a rate hike in April and more hikes later this year, doubts are creeping in about whether the euro zone economy will be able to withstand such monetary tightening given a patchy recovery in the economy."The market has already priced in a rise in euro zone rates to near 2 percent by the end of the year. But there are worries about whether rrbrthe economy can cope with such high rates," said Makoto Noji, a senior strategist at Nikko Cordial Securities."It's also hard to think investors will try to price in even more aggressive rate hikes from now, which suggests the euro may be capped in the near term," he said. In an auction on Wednesday, Portugal saw its cost for issuing two-year debt soar to the highest level since it adopted the euro in 1999, highlighting fears that a rate hike could push some euro zone periphery countries into a corner. ??The euro traded at $1.3905 , little changed from late U.S. levels, after having fallen to as low as $1.3855 on Wednesday, its lowest in nearly a week.Some market players expect the market's focus to fall on debt woes in coming weeks, when European leaders and finance ministers will hold a series of meetings to deal with debt problems, starting with a euro zone summit on Friday.A similar dichotomy of rate hike outlook and concerns over a weak recovery is also in play for the British pound to a certain extent, helping to stall its rally after it hit a one-year high last week.Sterling traded at $1.6200 , off last week's high of $1.6344.The Bank of England is expected to keep rates on hold at its monetary policy committee meeting on Thursday but some policymakers are growing increasingly nervous about the threat of inflation and money markets are fully pricing in around a 75 percent chance of a quarter percentage point rate hike in May, with the likelihood of two more before the end of the year.In contrast, The New Zealand dollar stayed under pressure after the Reserve Bank of New Zealand cut interest rates by an aggressive 50 basis points to 2.5 percent to mitigate the impact of an earthquake that hit the country last month.The kiwi drew some support from comments by the central bank's chief that easing would have to be reversed once rebuilding from the Christchurch earthquake got under way in earnest.But its technical outlook looks fragile after it hit a five-month low around $0.7335 , falling below its December low following the rate cut, with a possible target seen at around $0.7270, a 50 percent retracement of its rally from May to November last year. The kiwi last traded at $0.7355.
"Investors' risk appetite is no so strong at the moment because of oil prices. In such an environment, currencies of countries that run a current account deficit and rely on foreign capital, such as the kiwi, are coming under pressure," said Makoto Noji, senior strategist at Nikko Cordial Securities.The dollar stood at 82.78 yen , retaining its rebound from a four-week low of 81.57 yen hit earlier this month, although Japanese exporters are said to be waiting to sell at and above 83 yen, which is likely to be enough to keep the pair in its rough 81-84 yen range of the past few months. (Reporting byHideyuki Sano; Editing by Michael watson)
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