Euro at five-week low on dollar


The euro languished at five-week lows against the greenback and at record troughs versus commodity currencies such the Australian dollar today as markets showed themselves thoroughly uninspired by the European Central Bank's latest attempt to bolster the EU economy.

Traders, however, expect the pressure on the common currency to ease in the run-up to closely-watched US jobs data due at 1230 GMT. Analysts expect employers to have added 90,000 new jobs to their payrolls last month.

The euro dropped to $1.2364 and A$1.2015, after the ECB cut interest rates exactly as expected, but refrained from bolder moves such as reviving its bond-buying programme. It was last at $1.2382, down 0.1 per cent on the day.

"The euro dropped on the ECB, but other risk assets have underperformed in the second half of the week too, as some think that job figures may come in stronger than expected and diminish chances of more quantitative easing by the Fed," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

Analysts turned a little more bullish on the sluggish US labour market after private employers stepped up hiring in June adding 176,000 new workers, suggesting that today's figures may also come in better than initially expected.

In response to the stronger number, Goldman Sachs raised its forecast for the non-farm payrolls to a 125,000 gain from 75,000.

The euro's immediate support was seen at the June 1st low of 1.2288, while resistance loomed around 1.2500.

A Reuters poll conducted after the latest ECB rate cut showed economists expect more measures in coming months, possibly including another round of cheap, long-term loans for banks.

Renewed euro softness saw the dollar index rally to 82.950, a high not seen since early June, before it settled around 82.84.

Against the yen, the dollar was barely changed at 79.90 yen having reached a two-week high of 80.099 overnight.

Analysts thought it was likely to stay tethered to its recent range as strong sell orders were detected around 80.10.

In contrast, high-beta(more volatile than average) currencies like the Australian dollar survived a whippy overnight session, thanks in part to a surprise interest rate cut by China, its second in a matter of weeks.

The Aussie hit a fresh two-month high against the US dollar at $1.0330, before succumbing to mild profit-taking which saw it drop 0.2 per cent to $1.0259.It has retraced 78.6 per cent of its big fall in May, but faces stiff resistance around $1.0300-50 - a band it traded in for much of April.

Beijing also gave banks more leeway to set lending rates in a move aimed at stimulating borrowing by creating a more competitive environment.

China is Australia's single largest export market and any action to stimulate the world's second-biggest economy is usually seen as positive for the Aussie, traders said.

However, Aussie-dollar bears argued that two rate cuts in swift succession highlighted the challenge China is grappling with in order to avoid a hard economic landing.