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. Last Updated: 07/27/2016

Euro Tumbles to New Lows Against Yen, Dollar




LONDON -- The euro fell to all-time lows against the yen and set four-month lows against the dollar Wednesday amid concern that recovery in Germany, Europe's largest economy, was not as solid as recent upbeat expectations.


The contrasting bullish view growing on the Japanese economy also cast the single European currency in a bad light, keeping it broadly under pressure particularly as investors sought safe havens for the thin year-end market.


"Europe looks a bit less attractive in investors' minds compared to the restructuring and M&A [mergers and acquisition] story in Japan," said Eugen Keller, foreign exchange and fixed income strategist at Dresdner Kleinwort Benson in Frankfurt.


"It is a big story for the markets now and will weigh on the attitudes toward investing in euroland when asset allocations are made next year."


The euro briefly dipped to a life low of 106.69 yen, a fall of about 3 yen in as many days. Wariness of central bank intervention kept trading choppy near the lows, but the euro's bounce was limited by overwhelming bearishness at the moment.


Euro/dollar fell to a four-month low of $1.0220, barely a cent above its lifetime low of $1.0104 set in July.


The European Commission issued a mildly bullish annual economic report saying the stage was set for the euro zone to grow robustly for several years.


The Commission forecast the area's economy to grow by a higher-than-previously-expected 2.9 percent in 2000 and 2001, while cutting its forecast for 1999 to 2.1 percent.


But traders said economic data, particularly forecasts, were given little importance in the currency market at the moment as prices were driven by position adjustments in thin holiday trading. U.S. traders were going into a virtual four-day weekend due to Thursday's Thanksgiving Day holiday.


"It's a question of the market squaring up," said Paul Lambert, senior currency analyst at Citibank. "The capital flows showed the market was sitting with a very long position in the euro, and as time went on the chances increased that the market will want to lose that position going into year-end."


Part of the euro's problem was said to be a loss of faith in the European recovery story due in part to the European Central Bank's recent 50-basis-point interest rate increase, which was seen as too aggressive by some.


Since then, data from Germany has tended to disappoint, and the market has also been alarmed at German government intervention in the corporate sector, specifically Chancellor Gerhard Schr?der's attempts to save the stricken German building group Philipp Holzmann AG. (See story, Page 17.)


"This involvement in a bankruptcy proceeding has caused concern amongst Japanese investors that politicians will not allow corporate restructuring to proceed unhampered," said Kenneth Landon, senior currency strategist at Deutsche Bank in Tokyo.


Meanwhile, the yen was holding ground near recent peaks against other major currencies as optimism about Japan's economy kept fueling investors' appetite for yen.


Besides appreciating to record highs against the euro, the yen had approached a five-year peak against the Swiss franc and four-year highs against the Australian dollar.


Against the U.S. dollar, the Japanese currency was holding within about a half yen of its three-week peaks near 104 yen hit Tuesday.