The euro fell against the dollar and yen today, and higher-yielding and commodity-linked currencies also slipped on investor concern for global growth prospects.
The euro came under pressure as the market awaited the European Central Bank's first ever one-year refinancing operation on Wednesday aimed at getting banks lending again and reducing the cost of borrowing for banks, firms and consumers.
“I think the market is just cautious ahead of the ECB refinancing operation and what it will mean for rates,” said Audrey Childe-Freeman, currency strategist at Brown Brothers Harriman.
The euro remained under pressure even after data showed a stronger-than-expected reading in German business sentiment.
“It was overall mildly positive but the fact that the current assessment index is failing to show any improvements suggests yes, sentiment is improving but we are still in contraction in terms of activity levels,” said Childe-Freeman.
Data today showed German Ifo business climate index rose to 85.9 in June from 84.3 the previous month, beating forecasts of 85.2. The current conditions index was at 82.4, versus a forecast of 83.1.
“The worst should be over but the ongoing improvement is likely to be too weak to seriously discuss a recovery,” said Carsten Brzeski, economist at ING Financial Markets.
By 11.32am, the euro was down 0.7 per cent at $1.3847 after hitting a session low of $1.3835, according to Reuters data. It was down 1 per cent against the yen at 132.82 yen.
Traders also cited a Wall Street Journalarticle about Germany's widening budget shortfall as an excuse to sell euros, while renewed concerns about the banking sector in the euro zone also weighed on the single currency.
Meanwhile, ECB Governing Council member Ewald Nowotny was quoted today as saying the central bank was likely to keep interest rates on hold for the rest of this year.
“If the economy is developing in the way that we expect, I do not see a perspective for this year and we will need to look again next year,” he told Bloomberg.
Reuters