Daily article about Forex market conditions

Published: 07 June 2010 at 06.57 GMT

Previous session overview

The euro dropped to fresh multi-year lows against the dollar and the yen in Asia Monday as investors dumped the risk-sensitive common currency on concerns that European debt woes and weak global share markets would push it lower this week.

The common currency also marked a record low against the Swiss franc, fueling speculation that the Swiss National Bank could step into the market later in the global day to staunch further falls.

Late last week, remarks by Hungarian politicians about the state of the country's finances shocked investors, causing the Hungarian forint to plunge and sending the euro tumbling to fresh four-year low against the dollar.

At 0450 GMT, the common currency was at USD1.1905, down from USD1.1962 late Friday in New York. Against the yen, it traded hands at JPY108.75, compared with JPY109.56. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the euro, was at 88.555 compared with 87.271.

Sterling, now mixed, is likely to trade with risks skewed lower. The sterling is undermined against the dollar by capital flight to the safe-haven greenback on heightened investor risk aversion, as well as concerns over a long period of slow economic growth in the U.K. as the government's fiscal tightening measures weigh. The sterling could, however, tip higher against the euro on technicals.

The Australian dollar was sharply weaker in Asian trade Monday as the running theme of risk aversion shows little sign of easing, driving demand for government bonds.

Market expectation

The euro may drop to USD1.1850 and JPY108.00 later in the global day, said analysts. The currency's slide against the Swiss franc also makes it completely possible that the Swiss National Bank could intervene in the market later today, they said.

Other traders and analysts agreed that the euro would likely fall further this week.

Dealers said the greenback would likely trade in a JPY90.00-JPY93.00 band for the rest of the week.

While the euro dominates attention in currency markets, investors will also be watching for comments from Japan's incoming Prime Minister, Naoto Kan, to see if he signals any changes in the country's foreign-exchange policies. Kan, formerly finance minister, is widely believed to favor a weaker yen.

But potentially more important are Monday's meeting of European Union finance ministers and Thursday's policy meeting of the European Central Bank. Investors are looking for guidance on the murky euro-zone debt crisis.

European stocks are expected to fall sharply when the markets open Monday, following slumps on Wall Street Friday and Asian markets Monday, as concerns continue to mount that the European sovereign-debt crisis could widen.