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Currencies: Surprise, Surprise -- Euro Trashed Again

Dan Bernstein

What's taking a lickin' but keeping on tickin'?

Our weather-beaten euro friend, that's what. It took a lickin' for the second consecutive day this morning, and it's tickin' -- further downward. After the well-expected decision by the European Central Bank to leave rates at 4.5% shifted the euro down slightly, a series of weaker-than-expected economic data out of key eurozone countries pushed the currency into a full-fledged tumble.

The euro fell to near six-month lows against the dollar, hitting $0.8579 most recently, down from $0.8648 at last close. The euro fell harder against the yen, slipping over 2%, to 103.64 yen per euro, a far cry from yesterday's close of 106.22 yen per euro.

The dollar gained strong ground against the yen also this morning, trading most recently for 120.70 yen per dollar, down from yesterday's close of 122.88 yen per dollar. The dollar had reached past two-month highs against the yen earlier today.

The fall in euro/dollars is "really a function of euro/yen" selling off today, said David Gilmore, a partner at Foreign Exchange Analytics, a currency tracking firm. He cited "major liquidation by hedge funds" of euro holdings today, after this morning's onslaught of yet more weak eurozone data.

German inflation rose 3% year-on-year in May, higher than was expected, to its highest level since January 1994. Coupled with Germany and France's lower-than-expected gross domestic product numbers, the euro was forced to multimonth lows.

There is "talk of stagflation," and "economic divergence" between eurozone countries now, Gilmore said. "People are just so turned off to the euro."

Tomorrow is Ascension Day, a European holiday, which will limit further trading and keep the markets somewhat quieter than they are today.

The dollar was lately gaining against the rest of the major world currencies as it gained strength from the euro's weakness. The British pound fell slightly to the dollar, trading most recently for $1.4236, down from $1.4273 at yesterday's close. The Australian dollar slipped to $0.5185 this morning, from $0.5231 at Tuesday's close.

The U.S. dollar strengthened to C$1.5448 in trade against its northerly neighbor, a bit higher than yesterday's closing price of C$1.5400.