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. Last Updated: 07/27/2016

Euro Set to Keep On Losing in Currency Markets




NEW YORK -- One constant of financial markets is that they regularly defy expectations.


This means that losers can be winners, analysts are caught off guard and explanations of what is occurringsometimes must be given with a shrug of the shoulders. All these features are present during the newest leg of the Japanese yen's rally against the dollar and the euro's plunge against both the dollar and the yen.


Easiest to explain is how the dollar can be strong against the euro at the same time it is weak against the yen. The dollar's weakness is a product of what is going on in Japan, not in the United States, while the dollar's strength has more to do with worries about Europe.


Over all, this means that the dollar's stumble against the yen is not as serious as this year's 10 percent slide might imply. In trading Tuesday, the Japanese yen shrugged off intervention by the Bank of Japan to weaken it and finished the day at 102.42 yen in Tokyo, up 0.78 yen from late Monday, although still below its level of 102.35 yen overnight in New York and slightly shy of the four-year high of 101.10 it set Friday, when American markets closed early in the session the day after Thanksgiving.


Meanwhile, the euro plunged further Tuesday morning in Europe, setting new lows against both the dollar and the yen. The currency was more than half a cent away from a new life low of $1.0036 hit in Asian trade but was unable to keep a grasp on its highs for the day above $1.01. At $1.0095, the euro was down from $1.0156 on Friday and almost at parity with the dollar; the euro finished at 103.50 yen Monday. For the year, the euro is down 13.5 percent against the dollar and 21.8 percent against the yen.


Signals that currency traders would usually watch closely are having little impact.


The yen is strengthening despite the presence of some negative economic signals, including weak Japanese household spending in the third quarter. The euro is falling even though new data show the French and German economies on upward paths.


Many investors bet on the euro, the currency of 11 European countries, when it was introduced in January, Parker noted. They lost badly as the euro fell close to parity with the dollar in July. But they bet on it again as it rallied up to $1.0894 by mid-October. In the swoon since, she said, they have fled faster than they did during the euro's first slide.


She said that European monetary officials were also hurting the euro by creating confusion regarding the euro's importance to their policies.


Last week, the president of the European Central Bank, Wim Duisenberg, said he was not worried about the euro's decline. Monday, he said intervention to support the euro was a possibility.