NEW YORK (Reuters) - The
euro fell to a three-month low against the dollar and a
17-month trough against the pound on Friday after a
disappointing report on German business sentiment
supported the view the European Central Bank will cut
interest rates next month.
Concerns that Sunday's European Union election results could
destabilize some euro zone governments also weighed on the euro.
Germany's leading indicator of business confidence, the Ifo index,
pointed to slower growth in Europe's largest economy as the index
hit its lowest level this year in May.
"That put pressure on the euro. It reinforces expectations the ECB
will ease policy sooner rather than later," said Eric Viloria,
currency strategist at Wells Fargo Securities in New York.
The euro fell to a three-month low of $1.3614 and briefly broke
below its 200-day moving average of $1.3636 before retracing to
$1.3631. Against the yen, the single currency was flat at 138.92
yen, erasing modest losses, and held above a 3-1/2 month low set on
Wednesday.
The euro fell to a 17-month low against the pound at 80.815 British
pence before moving back to 81.000 pence.
Trading volume, as expected, faded faster than usual before the
weekend. There is a U.K. bank holiday on Monday while U.S. financial
markets will be closed for Memorial Day.
Investors also trimmed euro holdings before EU election results due
at about 2100 GMT on Sunday, traders said. A strong showing by
fringe parties would highlight the anti-euro and anti-austerity
sentiment in countries like Italy and Greece that have regained
market confidence.
"There are some concerns about the extremist parties gaining
ground," said Alan Ruskin, global head of G19 currency strategy with
Deutsche Bank in New York.
Weaker euro zone members have shown progress in managing their high
debt loads. Earlier, Standard & Poor's upgraded Spain's credit
rating by a notch to BBB, helping to stem euro's fall and to spur a
rally in peripheral euro zone debt.
DOLLAR STEADY
The euro's modest losses boosted the dollar index <.DXY>, which
tracks the greenback against a basket of major currencies, to its
highest in six weeks at 80.443 before easing to 80.364.
Against the yen, the dollar was up 0.2 percent at 101.93, recovering
from the 3-1/2 month low of 100.805 yen hit two days earlier.
The benchmark U.S. 10-year yield finished at 2.536 percent, down 2
basis points on the day despite a stronger-than-expected new home
sales report. It touched a 1-1/2 week high of 2.566 percent on
Thursday, almost 10 basis points above the 6-1/2 month low set last
week. <US/>
(Additional reporting by Anirban Nag in London; Editing by Toby
Chopra, Susan Fenton, Meredith Mazzilli and Nick Zieminski)
