Published: Tue, 17 Feb 2009 14:39:17 +0100

Euro Falls as Moody's Raises Concerns over European Debt

(CEP News) - Growing positive sentiment in Europe is not enough to support the euro as financial concerns continue to grip the markets.

The euro is under pressure as investors once again flood into safe haven currencies like the U.S. dollar and the Japanese yen. Overnight, the euro broke through 1.2660, which strategists have said is a key support level. They say 1.26000 appears to be acting as some initial support and that EUR/USD continues to trade near the bottom of it's range. The pair is down 1.69 cents to 1.2634 USD.

A better-than-expected reading in the German ZEW survey was unable to provide any momentum for the euro. On Tuesday, the Centre for European Economic Research said its investor sentiment index rose to -5.8, up notably from both the -25.0 figure expected and January's -31.0 reading and marking the largest jump since July 1993.

However, currency strategists say the focus is on the banking sector following the release of a report by Moody's warning that Western European banks face downgrades due to significant exposure to financial problems in Eastern Europe.

Currency strategist from Barclays Capital said the latest news from Moody's, mixed with weaker growth expectations, highlight the risk for more interest rate cuts from the European Central Bank, which would continue to put pressure on the euro.

They added that any strength in the euro against the U.S. dollar and the pound could be seen as a buying opportunity.

"EUR/GBP remains well above its longer-run fair value in our view," they said.

Adam Cole, global head of FX strategy at RBC Capital Markets, is also expecting to see broad weakness in the euro and is recommending short positions for EUR/USD, EUR/GBP and EUR/NOK.

Euro/USD down 1.77 cents to 1.2626

USD/CAD up 2.10 cents to 1.2636

USD/Yen up 0.25 points to 91.99

GBP/USD down 0.40 cents to 1.4259

AUD/USD down 1.17 cents to 0.6387

Euro/Yen down 1.32 points to 116.13

Euro/GBP down 1.01 pence to 0.8854

GBP/CAD up 2.52 cents to 1.8018

CAD/Yen down 1.04 points to 72.80

The U.S. Dollar Index is up 0.85 points to 87.51

All data taken at 8:37 a.m. EST

By Neils Christensen, neilsc@economicnews.ca, edited by Stephen Huebl, shuebl@economicnews.ca