* Euro zone manufacturing contracts again in March
* Euro pressured again on outlook
* Yen gains on start of quarter short covering
By Julie Haviv
NEW YORK, April 2 (Reuters) – The euro opened the second
quarter of 2012 lower against the dollar and yen on Monday as
weak European manufacturing data highlighted a growing split
between the economic outlooks of the United States and the euro
zone.
Manufacturing strengthened in the United States and China in
March while the euro zone contracted for the eighth straight
month.
Reports from the euro zone, which is teetering on the brink
of recession, also showed the downturn in the region’s smaller
nations has spread to core countries Germany and France,
according to purchasing managers’ indexes (PMIs) for March. The
outlook was grim as new orders fell across the region for the
10th month.
The weak data should keep European Central Bank monetary
policy accommodative, but at the same time the U.S. Federal
Reserve is expected to keep rates at near zero until 2014.
“We are looking at interest rates that are low in both the
U.S. and Europe and that is why the euro has been stuck in a
range, trading within the $1.33-$1.3350 area,” said Daniel Wang,
senior currency strategist at Forex.com in New York.
“Until we see more solidified views from either the Fed or
the ECB, the euro/dollar should remain range bound.”
The Federal Reserve on Tuesday will release minutes from its
last policy meeting.
The euro last traded at $1.3324, down 0.1 percent on the
day, and below a recent one-month high of $1.3385, according to
Reuters data. The euro has traded between $1.33-$1.3380 since
March 26.
Resistance of euro/dollar is at $1.3380, but a break could
ignite a quick move to $1.35, Wang said.
“PMIs out of Europe are another reminder of the extent
economies have gone down,” said Omer Esiner, chief market
analyst with Commonwealth Foreign Exchange in Washington, D.C.
“Strong U.S. data this week is likely to see the dollar
strengthen on rising yield appeal.”
Traders said negative sentiment toward euro zone assets
arose on reports the Bundesbank would not accept the bonds of
several countries, including Portugal, as collateral. Germany’s
central bank later denied the reports.
YEN LEAPS ON SHORT COVERING
The dollar last traded down 0.8 percent at 82.14 yen
and the euro down 1.3 percent at 109.48 yen.
Forex.com’s Wang said yen strength was largely due to hedge
funds and real money accounts covering short positions on the
first day of the quarter.
The Japanese currency was earlier undermined by a
weaker-than-expected reading of the Tankan survey of sentiment
at big Japanese manufacturers, which put the spotlight on
whether the Bank of Japan will ease monetary policy further as
early as next week.
The dollar/yen spiked in response to the disappointing
Tankan, but retreated to retest the bottom of its two-week
trading range around 82.00.
“The Bank of Japan is likely to come under more pressure to
ease policy as soon as next week’s meeting,” Brown Brothers
Harriman wrote in a report. “While stepping up its asset
purchase program is one option, we suspect the BOJ could
increase its fund provisioning measures to stimulate business
sentiment instead.
The Australian dollar was up around 0.8 percent for the day
at $1.0416, though off a high of $1.0449 touched earlier in the
global session.
The currency tends to benefit from any signs of improvement
in the Chinese economy due to Australia’s strong trade links
with the country. But many analysts have recently expressed
concerns it is overvalued.
“The Chinese recovery is modest … We like to sell Aussie
on any rally,” said George Saravelos, G10 currency strategist at
Deutsche Bank in London.
