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Euro trails dlr and yen in popularity stakes

TOKYO: The euro sagged to two-week lows against the dollar on Wednesday as investors voted with their feet and rushed headlong into US assets.

Treasury prices rallied to six-months highs and all the major US equity indices racked up solid gains in reaction to a well-flagged 25 basis point hike by the Federal Reserve.

The tightening took rates to their highest level since 1995 and the central bank clearly warned that more could be needed, but investors celebrated anyway, safe in the belief that the Fed was not out to throttle the economy.

That drew the inevitable comparisons with Europe's growth pretensions, which despite more upbeat German data were labelled as second-best by the majority.

"It's very much an old economy versus a new economy story," Patrick Bennett, director, currency strategy at Warburg Dillon Read, told Reuters Television. "People want to participate in the structural reform and growth story in the US, and while Europe is recovering, it still has very severe structural problems," he said, pointing to Europe's relatively high levels of unemployment.

Even Japan was considered more of a restructuring story than Europe, he added.

Traders said whatever the rationale, the tide was undeniable with sustained selling first triggering stop-loss sales through support at $0.9690 in New York and then $0.9630 and $0.9600 here in Tokyo.

By late morning the euro was lying broken at $0.9591 having fallen from $0.9639 late in New York and a high on Tuesday around $0.9735.

Analysts noted the retreat had shattered trendline support and added a technical element to the euro's list of woes.

"The two-week wedge pattern has been decisively broken to the donwside and this is likely to open a multi-day decline," said analysts at IDEA. Support was seen at $0.9520, a trough from March 8, but most saw it as no more than a stepping stone on the march lower.

"There's a chance the move will be as meandering as the recent rally was...but ultimately it's likely to lead to a retest of the (record) $0.9390 low," said IDEA.

The outlook was hardly better against the yen, where the euro had slumped to 102.32 yen from 103.00 late in New York and a high around 103.80 on Tuesday.

Traders said Japanese exporters still seemed to have cover to take even though most institutional repatriation flows appeared to have dried up now that the March year-end was near.

The flow out of euros and into yen in turn put pressure on the dollar, dragging it to 106.69 yen from 106.85 in the US and an overnight high around 107.25.

However, traders expected Tuesday's low of 106.25 to provide solid support, particularly as the market remained wary of Bank of Japan intervention.

Lest anyone had forgotten, Finance Ministry forex chief Haruhiko Kuroda restated the official line that there was no need for the yen to strengthen further given current economic fundamentals.

There was also much interest in a Jiji news agency report released on Tuesday which claimed that the BOJ had intervened in the euro on March 8 at the request of the French Finance Ministry.

This was hastily denied by the French and analysts found it hard to believe France would go behind the back of the European Central Bank to ask Japan to support the euro.

But some traders were not so quick to dismiss the story.

"We know that the MOF and the French Finance Ministry have quite close links," said a trader at a European bank.

"We know the French were concerned by the euro's slide, and the ECB wasn't. So is it impossible that the French dropped a hint to the MOF that intervention in euro/yen might be a good idea? Unlikely maybe, but impossible? No."

If even a part of the tale was true, it would expose deep rifts within the and the ECB about the management of the currency, with negative implications for the euro. Currency bid prices. All data taken from Reuters with percent change calculated from the daily US close.-Reuters