Monday, Jun 07, 2010


 
   By Bradley Davis 
   Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)-- The euro recovered Monday after earlier touching its lowest level against the dollar since March 2006, but investors kept the common currency under pressure over fears the euro-zone sovereign-debt crisis was spreading.

Better-than-expected German factory-orders data supported the euro, indicating a weaker currency was helping to bolster exports after last year's 5% contraction, the worst performance in 60 years.

"Although the European-area sovereign-debt crisis is supposedly restraining domestic activity, the appeal of lower-cost goods produced within the euro zone is boosting overseas demand," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn.

Early Monday, the euro was at $1.1973 from $1.1962 late Friday, according to EBS via CQG. The dollar was at Y92.07 from Y91.60, while the euro was at Y110.24 from Y109.56. The U.K. pound was at $1.4497 from $1.4499. The dollar was at CHF1.1630 from CHF1.1623.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 88.239 from 88.271.

Despite its brief respite, the euro again faces pressure, perhaps declining as far as $1.1645 in the near term, as investors worry the debt crisis that started in Greece will continue to spread, spilling across euro-zone borders into Hungary.

"The problems in Europe have been spreading, also impacting countries beyond the euro zone [Hungary]. But the biggest risk is at the core of Europe," said BNP Paribas analysts, noting risks to Germany and France.

On Friday, the common currency fell below the key $1.20 level--its 10-year average--and a drop below $1.18 would mean it had declined below the level it exited from its first day of trading when the common currency was introduced in 1999.

Meanwhile, the euro overnight hit a fresh all-time low against the Swiss franc, posing a particular problem for the Swiss National Bank, which has had to watch the euro come crashing down under CHF1.40 to a the record low of CHF1.3853.

So far, there has been little sign of Swiss central-bank intervention, which has been suspected of intervening in currency markets to temper franc strength.

However, some analysts suggested it could well come into the market to "smooth" the euro's decline now that it has broken down through stop losses around CHF1.40.

"But," said the currency strategy team at Commerzbank, "the [intervention] effects should be short-lived. And the SNB must be aware of the fact that it will be difficult to stem against such a massive downside pressure on the euro." 


  Canada Morning

The Canadian dollar was off its lows against the U.S. dollar, after a volatile overnight session.

The U.S. dollar pared some overnight gains and was trading at C$1.0596 from C$1.0622 late Friday.

"A lot of currencies are pretty unchanged from where they were when we left them on Friday, but I think the market is still looking for more U.S. dollar strength overall," said Steve Butler, director of foreign exchange at Scotia Capital in Toronto.

With no major data releases in Canada Monday, investors will look to Bank of Canada Governor Mark Carney's words Monday afternoon for clues about future interest-rate increases. Carney is scheduled to participate in an economic forum in Montreal.

Canada's central bank last week became the first in the Group of Seven major industrialized economies to raise interest rates since the onset of the global economic crisis in 2008. The decision was accompanied by words of caution, suggesting there could be pauses in the rate-increase cycle.

-By Bradley Davis, Dow Jones Newswires; 212-416-2654;

bradley.davis@dowjones.com

(Karen Johnson in Tornoto and Nicholas Hastings in London contributed to this article.)

(END) Dow Jones Newswires

June 07, 2010 08:49 ET (12:49 GMT)