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Euro tumbles on ECB, economic slowdown risks

LONDON - The euro fell broadly on Friday as comments by a senior European Central Bank official fuelled expectations for liquidity to remain ample and investors sold riskier assets on concerns of economic slowdown.

European Central Bank Governing Council member Axel Weber told Bloomberg in an interview published on Friday it would be “wise” to extend unlimited liquidity to banks past the end of 2010.

The single currency fell to $1.2686, its lowest since mid-July. Selling gained momentum after the euro broke key technical levels around $1.2730, with stop-loss sales triggered on a break of that level, traders said. Some market participants cited the euro being sold by central banks. European stocks fell 1.0 percent at one point, as investors pared back on riskier assets.

“It’s all moving in the same direction,” said Ian Stannard, senior currency strategist at BNP Paribas. “The situation is turning to one where weak U.S. data is becoming a positive for the dollar as a U.S. slowdown is seen affecting a broader global economic recovery.”

By 1120 GMT, the euro was 0.9 percent lower on the day at $1.2706. Technical analysts said the market was focusing on the $1.2646 region, around the 23.6 percent Fibonacci retracement of the euro’s slide in November 2009-June 2010.

The euro also fell more than 1.0 percent against the yen to a 7-week low of 108.25 yen and towards its record low against the Swiss franc, dropping 0.6 percent to 1.3141 francs.

DOLLAR HOLDS ABOVE 85 YEN

The dollar was a clear gainer, hitting a one-month high against a currency basket at 83.161.

It remained under pressure against the yen but managed to hold above 85 yen on speculation that Japanese authorities may take steps to stem the yen’s rise.

Speculation is focused on additional easing measures by the Bank of Japan, including expanding a funding scheme for short-term loans.

“Markets are waiting for a meeting between the prime minister and the Bank of Japan governor, which is feeding into hopes that some easing measures may emerge,” one London-based trader said.

The dollar had dipped below 85 yen on Thursday after a spate of weak U.S. data that showed a rise in new U.S. jobless claims while a mid-Atlantic manufacturing index fell this month for the first time in more than a year.

Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi, said: “The risk of unilateral intervention is rising although it would likely prove ineffective at the current juncture,” citing Finance Minister Yoshihiko Noda’s remarks on Friday his ministry was communicating with other Group of Seven countries on currencies.

The high-yielding Australian dollar fell to a one-month low of $0.8841. The currency was on the back foot on concerns about Saturday’s election, overshadowing upbeat comments from the central bank’s deputy governor.