19 May 2010 09:37 GMT
Euro Slumps On German Short-Selling Clampdown
Euro Slumps On German Short-Selling Clampdown
By Katie Martin Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The euro plunged to a fresh four-year low against the dollar as traders digested news that Germany's financial regulator has banned some types of short-selling in euro-zone debt and selected financial stocks.Currencies seen as safe havens in times of stress--the yen and the dollar among them--also jumped higher on the news, while riskier currencies like sterling, the Australian dollar and the Canadian dollar suffered.
Analysts were generally uncertain on just how the ban by the German regulator BaFin will trickle through to the 16-country currency. Investors are unsure exactly which instruments will be affected, and many fear that similar legislation could be enforced elsewhere in the euro zone. That is jangling already frayed nerves, and with negative positions in debt now more difficult to place, the euro is taking the strain.
"The most obvious trade now for speculative investors is via the euro," said Ian Stannard, a currencies analyst at French bank BNP Paribas SA.
"But it also has broader implications for longer-term investors as well. It could slow their inflows into the euro and even cause some outflows. It raises questions over the euro's status as a reserve currency," he said.
Stannard said the legislation, which so far affects only trading that is regulated within Germany, is "not thought through... It's all about German domestic politics".
Aside from its fresh bout of weakness against the dollar, the euro has also tumbled against sterling and yen.
"What we've learnt repeatedly in this crisis that every action has an equal and opposite reaction", said Jim Reid, a credit strategist at Deutsche Bank.
"If the authorities prevent free market activities in some areas, the risk is that the pressure moves somewhere else. In this case, the euro was left exposed", he added.
Gary Jenkins, head of fixed-income research at Evolution Securities in London joked that "maybe they need to sell short selling in the currency".
The BaFin ban dominated trading in European hours, and was a big factor behind the rise in the safe-haven yen, with the dollar falling from a high of Y92.24 to a low of Y91.25.
The yen's gains also came as the International Monetary Fund gave positive signals about the country's likely growth path. The Washington-based body suggested that the Bank of Japan should consider extra monetary easing. It also said it expects to see gross domestic product rising by 2% in 2010 and 2011 respectively.
Elsewhere, minutes from the Bank of England's May meeting showed that the vote to keep rates at a record low was unanimous, despite modest upward pressures on inflation. The minutes had no impact on sterling, which was under selling pressure because of the broader market nerves.
Amid this backdrop, Europe's emerging-market currencies sold off sharply, with the euro rising to over HUF280 against the highly risk-sensitive Hungarian forint. The Polish zloty, Turkish lira and Czech koruna were also weaker, along with the South African rand, which usually trades in line with these European currencies.
U.S. inflation data and minutes from the most recent Federal Open Market Committee meeting are due in New York trading hours.
At 0917 GMT, the euro was trading at $1.2184 against the dollar, from just over $1.22 late in New York Tuesday, according to trading system EBS. It hit a low of $1.2143 in Asian hours. That marks a sharp decline from the $1.24 area it occupied for much of Tuesday.
The dollar was at Y91.63 from Y92.30, while the pound was at $1.4275 from $1.4350.
New York, May 10th (TradersHuddle.com) - Unusual high volume detected on shares of Citigroup Inc. (NYSE:C), early in the trading session. Citigroup is currently trading higher by 5.62%, so definitely the buyers stepping in, as the stock's volume is on pace to break its average.
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