Euro down vs. most major currencies on doubts on ECB plan

Mon Aug 6, 2012 10:13am EDT
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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - The euro pared gains against the dollar and slipped against other currencies on Monday as doubts resurfaced among investors about the potential effectiveness of measures pledged by European policymakers to resolve the euro zone debt crisis.

Earlier Monday, the euro had hit a one-month peak against the dollar, adding to Friday's rally, but that came at a time when the market was very illiquid and so that move higher didn't have much momentum to it.

The recent strengthening of the euro owed mainly to optimism about a European Central Bank plan to step in and buy bonds to reduce high Spanish and Italian borrowing costs in coming months, some analysts said.

But doubts persisted about the ECB's proposed plan of action and many saw more pain for the euro zone before a resolution to the crisis is reached. This meant some investors were inclined to use the euro's bounce to put on fresh bets the currency would weaken.

"There is a definite dichotomy in investor sentiment at the moment. There has been a good bit of interest from shorter-term traders to fade the recent bout of euro strength given the lack of action and follow-through from Draghi last week," said Andrew Cox, currency strategist at CitiFX in New York.

The euro was up 0.1 percent at $1.2397 against the dollar, below a peak of $1.2443 hit in Asian trade, its strongest since July 5. Near-term resistance was seen at around $1.2478, the 61.8 percent retracement of its drop from a mid-June peak to a two-year low of $1.2042 struck in late July.

The euro zone's common currency was down 0.2 percent against the yen at 96.96, having earlier risen to 97.79, its strongest since mid-July. It was also slightly lower against the Swiss franc and was 0.2 percent weaker against the Norwegian crown.

CitiFX's Cox, however, pointed out not everybody is looking to sell the euro. "We see continued demand for real assets in Europe, both sovereign debt and equities, which we feel is driven by the dissipation of Euro zone tail risk -- a development that could continue to support the euro in the coming weeks."   Continued...

Euro notes are pictured at a bank in this photo illustration taken in Seoul June 18, 2012. REUTERS/Lee Jae-Won