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. Last Updated: 07/27/2016

NEWS ANALYSIS: Euro Sheds Value, Nears All-time Low




LONDON -- The euro was weak across the board Friday, holding within sight of 10-week lows against the dollar and six-week lows against the yen, as investors continued to trim their long euro exposures. Analysts said the single currency was at risk of retesting its all-time lows as players were becoming increasingly worried about the extent of its two-week long sharp decline and with no signs of any significant slowdown in the U.S. economy.


Expectations of better growth prospects in the U.S. had prompted investors and short-term speculators to reduce investments in euro-denominated assets and redirect their investments into the U.S.


More and more players joined in as the single currency broke below some key support levels in the past few days.


"Most people are now talking about the risk of hitting the all-time lows because we are so close to it," said Michael Lewis, senior currency economist at Deutsche Bank in London.


"It's general dollar strength, which is accentuated by the positioning problems for the euro. In the past we've seen people piling into Euroland equities with the expectations of growth recovery. But we've seen a better relative growth performance in the U.S. in Q2 and there's been a shift back into U.S. equities."


Analysts said U.S. non-farm payrolls data for July, due out Friday, would be crucialfor assessing the possibility of a U.S. interest rate hike in the near-term.


"If the figures are strong, as we expect, the market will play up the growth differential and dump the euro," said a U.S. bank dealer in Tokyo.


"If they're weak, people will take it as proof of the soft landing and dump the euro."


By morning the euro was limping around $0.9030 against a low of $0.8991 it set on Thursday, when it came within 2.0 percent of its record low of $0.8843 it set in May. It failed to sustain an early bounce to around $0.9070 on Friday.


The euro has shed almost 5.0 percent of its value since setting two-week highs around $0.9450 on July 26.


The single currency has also suffered hefty losses against sterling and the yen, with falls against the latter so large that it helped the Japanese currency defy bearish sentiment and rally against the dollar.


"The euro's been a real surprise for a lot of people, and not a pleasant one," said Ken Landon, senior currency strategist at Deutsche Bank in Tokyo.


"You have to assume that the market's going to have a look at the $0.8850 level see if that holds. If it does we could get quite a quick rally, but if it folds we'll be back to searching for a bottom and that could be as low as $0.85."


Analysts said merger and acquisition flows have also played a part in the euro's recent decline.


The purchase of U.S. PaineWebber by Swiss bank UBS AG prompted selling of Swiss francs for dollars Thursday. That coincided with comments by the Swiss National Bank playing down a rise in inflation, and so lessening the chance of a rate hike. This drove the Swiss franc down 2.5 centimes (1.5 cents) to nine-week lows, bringing pressure to bear on euro/dollar.


The euro was equally hamstrung on the yen at 97.90 yen (90 cents) having sunk to six-week lows around 97.40 on Thursday, only three percent away from an all-time low of 94.81. Yen gains against the euro helped the Japanese currency to hold up around 108.40 yen to the dollar despite losses in Japanese shares and talk of yet more bankruptcies in Japan.


Bank of Japan deputy governor Yutaka Yamaguchi said Friday that the BOJ would not end its 18-month old policy of keeping interest rates near zero just for the sake of avoiding moral hazard.