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Euro sags near low, little reprieve in sight

TOKYO: The euro stood near record lows against the dollar and sterling by late afternoon on Friday, and dealers saw little scope for a rebound in sight amid European officials' outward nonchalance towards its recent falls. The euro hit a record low of $0.9865 overnight, dealers said, and reached that level again in Tokyo on Friday morning.

Against sterling, the euro stood at 60.33/40 pence, after falling as low as 60.24 pence in Tokyo, just barely above a record low of 60.23 pence reached overnight.

Dealers said the euro may garner some support if US asset markets retreat on Friday ahead of the US Federal Open Market Committee meeting next week.

But the scope of any rebound in the euro was likely to be limited, as many dealers are setting their sights on $0.9780, a key psychological level equivalent to 2.00 marks to the dollar.

"A trend of euro weakness may not change for some time. It seems as if it may take some while before the euro is able to rise above parity again," said Takayuki Togawa, manager for Tokai Bank Ltd's international trading department.

The euro stood at $0.9881/86 as against $0.9881 in late US trading on Thursday.

The dollar stood at 104.91/01 yen against 105.15 yen in late US trading.

The euro's weakness has helped boost the yen against the dollar.

Dealers said the dollar was weighed down by the potential for long liquidation by foreign operators.

"Short-term overseas operators still have long dollar positions taken on the back of yen carry trades as well as a widening US-Japan interest rate gap," said Tokai's Togawa.

"There is a risk of a mini dollar crash if such positions are unwound," he said.

But dealers said the yen's rise on euro weakness has stirred wariness about the potential for BOJ yen-selling intervention and has made dealers reluctant to buy the yen actively.

Dealers said the US fourth-quarter advance gross domestic product data and the employment cost index (ECI) to be released on Friday could help the euro reclaim some ground in the near term.

"If the US ECI and GDP exceed expectations and trigger falls in US asset markets it could trigger some short-covering in the euro ahead of the weekend," said a European bank dealer.

"But its gains will likely be limited to levels slightly above $0.9900, as there is stiff resistance at $0.9980," he said.

In a Reuters survey, economists on average forecast a 0.9 percent increase in the ECI in the fourth quarter of 1999, up from the 0.8 percent rise in the third quarter.

The average forecast for fourth-quarter GDP predicted growth of 5.3 percent, compared with 5.7 percent in the third quarter.

The euro may consolidate if the European Central Bank's governing council decides to raise interest rates when it meets on Thursday next week, dealers said.

But unless ECB officials begin to express concerns about the euro's declines or the ECB intervenes to prop up the euro, further downward probes are likely in the near term, they said. "The euro is likely to be dragged lower by long liquidation against the dollar and yen, as well as speculative sales aimed at hitting large knockout option triggers said to exist below $0.9800," said an options trader for a major Japanese bank.-Reuters