Monday, May 09, 2011
By Andrew J. Johnson
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Euro-zone debt concerns dealt the euro its latest blow Monday as the common currency fell against its major rivals, except the dollar.
The euro declined against the Swiss franc, yen, U.K. pound and Swedish krona after Standard & Poor's downgraded Greece's credit rating by two notches. Later, Moody's placed Greek debt on review for potentially a multi-notch downgrade.
Traders abandoned pro-euro bets over concern that vulnerable European nations' problems could deteriorate, a fear sparked last Friday when the common currency tumbled on a der Spiegel report, later denied, that Greece was considering bailing out of the euro zone.
"The concern over the euro is pressure on the peripheries, and the market is beginning to get more worried than it was before," said Steven Englander, head of G-10 strategy at Citigroup in New York.
A late surge in dollar-denominated oil ended the dollar's winning streak against the euro, which had been down against the U.S. currency most of the day. A surge in oil prices creates a windfall of dollars for oil exporters, which already have substantial dollar holdings, inducing them to diversify some holdings into other currencies. Higher oil prices also depress the dollar's value because of the inflationary impact.
The common currency's woes had sent it into a 4.6% tailspin against the dollar between its high last Wednesday to Monday's session low of $1.4254.
Late Monday, the euro was at $1.4364 from $1.4315 late Friday, according to EBS via CQG. The dollar was at Y80.34 from Y80.65, while the euro was at Y115.36 from Y115.49. The U.K. pound was at $1.6397 from about $1.6374. The dollar was at CHF0.8717 from CHF0.8788.
The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 74.624 from about 74.841.
Investors who had bid up the common currency have a lot to lose. As of May 3, data on speculators' positions in the currency market show euro bulls had a net $18.4 billion position against the out-of-favor dollar. Just as currency traders recently shed the U.S. currency over questions about the U.S. debt load and a commitment to spending cuts, similar questions are increasingly being asked about the euro.
"The position is a lot more long the euro" than it was to start the year and there is more to lose if the euro bulls are wrong about the euro zone's economic health, Englander added.
In a sign that anxiety is starting to grow, the spread of Spanish two-year bonds over similar German bunds was at 171 basis points Monday. That was up from 140 basis points last Wednesday.
The euro's persistent fragility, along with questions about how fast and far the dollar has fallen of late, could set the stage for a rebound of the U.S. currency.
Citi FX's so-called PAIN index provides a measure of investor positioning in G-10 currencies versus the U.S. dollar. It was designed to reveal when leveraged positions in currencies become so large they are acutely vulnerable. Citi considers 60 the threshold for a significant long position, and that number is now over 65.
-By Andrew J. Johnson, Dow Jones Newswires; 212-416-3092; andrewj.johnson@dowjones.com
--Anna Raff and Erin McCarthy contributed to this article.
(END) Dow Jones Newswires
May 09, 2011 17:05 ET (21:05 GMT)
