* Euro hits two-month low versus dollar, five-week low vs
sterling
* ECB keeps rates unchanged, says growth to remain weak
* U.S. fiscal worries underpin safe-haven flows into dollar
By Wanfeng Zhou
NEW YORK, Nov 8 (Reuters) – The euro fell to a two-month low
against the dollar on Thursday after the European Central Bank
held interest rates at a record low and said the euro zone
economy showed little sign of recovering before year-end.
ECB President Mario Draghi, in a press conference after the
bank’s decision to hold rates steady at 0.75 percent, said the
bank cannot do much more to help Greece with its debt burden and
gave Spain none of the assurance it has sought that ECB bond
buying will lower its borrowing costs.
Uncertainties about the euro zone’s economic outlook, the
ability of Greece to stay afloat and when Spain will request
international aid have weighed on the euro in recent days. The
currency has rallied nearly 4 percent against the dollar since
the beginning of August.
“We do expect the euro to be on the weaker side. Since
August, the euro has recovered fairly nicely, but we’ve lost
that momentum now. I wouldn’t really be surprised to see it get
back into the $1.24-$1.25 area,” said Tom Nakamura, a portfolio
manager at Toronto-based AGF Investments, which oversees $42
billion.
The euro slid to a two-month low of $1.2716 on
Reuters data, the weakest since Sept. 7, before recovering to
$1.2745, down 0.2 percent on the day. Traders said
option-related buying was noted ahead of $1.2700 barriers.
Analysts said Draghi’s comments on growth left open the
opportunity of an interest rate cut although he said
policymakers have not discussed plans for next year.
“The European economy needs to be revived. If the ECB will
not do it, who will? The euro will continue to weaken because
there is no recovery in sight for Europe and the rest of the
world continues to slip,” said Joseph Trevisani, chief market
strategist at WorldWide Markets in Woodcliff Lake, New Jersey.
German exports slid at their fastest pace since late last
year, figures showed on Thursday, adding to evidence that the
euro zone’s debt crisis has begun to inflict a heavy toll on
Europe’s largest economy.
The dollar index, which measures its performance against a
basket of major currencies, rose to a two-month high of 81.001
as investors trained their focus on the “fiscal cliff”
that is threatening to push the U.S. economy into a recession
next year. The index was last up 0.1 percent at 80.841.
Concerns about the U.S. fiscal situation has ironically
prompted investors to seek safe haven in U.S. Treasuries,
boosting the dollar.
About $600 billion in government spending cuts and higher
taxes will kick in early next year, unless U.S. lawmakers take
steps to reduce the deficit.
SPAIN AUCTION
Spain’s bond yields rose after signs of weak demand at an
auction of new five-year Spanish bonds raised a warning flag,
even though the sale completed the country planned funding for
2012, allowing it to hold out a bit longer before requesting
international aid.
A media report that said Spain is edging away from asking
for aid this year also drove speculators – already positioned
for further weakness – to sell the euro aggressively. Earlier
this week, Prime Minister Mariano Rajoy said conditions over a
potential bailout were still being studied.
Financial markets had been waiting for Madrid to ask for
aid, a move seen as positive for Europe because it would
activate the ECB’s bond-buying program aimed at lowering
borrowing costs for debt-laden euro zone economies.
The euro also hit a near four-week trough against the yen,
and was last down 0.6 percent at 101.54 yen.
It also fell to a five-week low against sterling at 79.605
pence and was last changing hands down 0.2 percent
at 79.76 pence. The Bank of England left interest rates and its
asset purchase program unchanged.
The dollar slipped 0.4 percent to 79.65 yen, staying
below a six-month high of 80.67 yen set on Reuters data last
week.
