Euro drops sharply vs dollar as debt fears dominate

Reuters, Monday 6 Dec 2010

Fears about euro zone peripheral government debt are moving the market

The euro fell sharply against the dollar on Monday, marking its first decline in four sessions, as fears about euro zone peripheral government debt moved to the forefront, trumping dovish comments made by U.S. Federal Reserve Chairman Ben Bernanke.

The weak performance of the euro comes ahead of a meeting of euro zone finance ministers, who are under pressure to boost the size of a rescue fund to stop a debt crisis from spreading.

The euro was down 1.14 percent at $1.3261, according to Reuters data. Traders reported an options expiry on Monday at $1.3250.

IMF chief Dominique Strauss-Kahn will present a report, a copy of which was obtained by Reuters, to euro zone finance ministers meeting in Brussels, saying more action is needed from member states.
This encouraged renewed selling of the euro after a rebound late last week took it back above $1.34, with traders citing selling by real money accounts and sovereign names.
Euro/dollar "has scope to move down further, with political developments and commitment from euro zone policymakers likely to be the focus," said Paul Mackel, director of currency strategy at HSBC.

The IMF report will say the euro zone should increase the size of its 750 billion euro rescue fund and the European Central Bank should boost bond buying markedly.
With the euro resuming its decline, the dollar index .DXY was up 0.5 percent at 79.814, close to its 100-day moving average of 80.04.

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