SINGAPORE, May 11: The euro hit a 3-1/2-month low on Friday as news of JPMorgan’s trading losses from a failed hedging strategy spooked investors and lent support to the safe haven dollar, with stop-loss selling adding to the euro’s drop.
The euro also remained vulnerable due to a political deadlock in Greece, which has left investors fretting over the risk of Greece exiting the euro zone and fanned worries that the region’s debt crisis may worsen.
‘The issue is no longer whether Greece will default or not, but whether or not it will leave (the euro zone),’ said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
‘If that were to happen, investor confidence in euro-zone denominated assets in general may waver, and it could cause market players to wonder whether such assets are suitable to be held as foreign reserves,’ he added.
The euro may stay stuck below $1.30 for a while, Karakama said, adding that the single currency could also be headed for a drop below 100 yen over the next month.
The euro fell to $1.2905 on trading platform EBS, its lowest level since late January. After trimming some losses, the euro stood at $1.2926, down 0.1 percent on the day.
Traders said stop-loss selling added to the euro’s drop, with the focus now on whether a euro option barrier said to be at $1.2900 would hold or not.
Both the dollar and the yen, safe haven currencies that tend to strengthen in times of market stress, rose against the euro, which slipped 0.1 percent to 103.27 yen, closing in on a three-month low of 102.76 yen hit earlier this week.
Traders said the euro came under renewed pressure as investors shunned risky assets and currencies after JPMorgan Chase & Co said on Thursday that it suffered a trading loss of at least $2 billion from a failed hedging strategy.
‘The question is how many other banks will follow,’ said a trader for a major Japanese bank in Singapore. ‘I personally don’t think the issue ends here with JPMorgan,’ he said.
The dollar dipped 0.1 percent against the yen to 79.89 yen.
BEARISH ON THE EURO
The euro has come under pressure this week after Greece’s two main pro-bailout parties failed to win a majority in weekend elections, leaving questions over the country’s ability to avert bankruptcy and stay in the euro.
Greek Socialist leader Evangelos Venizelos meets conservative Antonis Samaras on Friday in a possibly doomed attempt to form a government and avoid a repeat election, while EU leaders are warning that Greece’s membership of the euro is at stake.
Market players see the euro getting little respite for now.
Adam Gilmour, head of FX and derivatives sales, Asia-Pacific, for Citigroup in Singapore, pointed to further political risks for the euro in the months ahead.
‘I’m bearish. This is the right direction for it to go,’ Gilmour said.
‘There is a very real risk that over the next year or so, more and more countries will eject the current politicians and vote in pro-growth parties, and the austerity measures and trying to fix the budget blowouts will be thrown out the window,’ he said.
With the latest troubles in the euro zone adding to concerns about tepid growth in the United States and China, traders have recently shunned risk-sensitive currencies such as the Australian dollar.
The Australian dollar inched up 0.1 percent to $1.0066, hovering near a low of $1.0021 hit earlier this week, its lowest level in more than four months.
(AGENCIES)
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