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Euro slides after France no vote
The euro skidded more than half a cent against the dollar on Monday after France soundly rejected the European Union constitution in a referendum, throwing doubts over the political future of the bloc. The "No" vote garnered 55 percent, much higher than most polls suggested before the referendum on Sunday. While the outcome was not expected to jeopardize the monetary union underpinning the euro zone's single currency and the European Central Bank, analysts said it does raise questions about the public support behind the EU and future integration. "The French referendum does not mean the end of the euro. It just shows there are a lot of things the European Union should do for it to develop further," said Tohru Sasaki, chief forex strategist at JPMorgan Chase in Tokyo. Still, analysts said the euro's recent slide to seven-month lows versus the dollar had as much to do with investors flocking back to the dollar as the Federal Reserve's steady lifting of interest rates further above those in the euro zone and Japan. For that reason investors and traders were eyeing reports this week on U.S. manufacturing and the labor market to judge the economy's strength and likelihood of more Fed credit tightening. "The real reason for the euro's weakness is a growing differential in interest rates between the euro zone and the U.S.," said Osamu Takashima, chief forex analyst at Bank of Tokyo-Mitsubishi. The euro fell as low as $1.2510 from around $1.2580 in late New York trade on Friday before rebounding to near $1.2540, still down about 0.25 percent. The single European currency held above a seven-month low near $1.2495 hit last week, just above a key level of technical support at $1.2490, traders said. The euro slipped slightly against the Swiss franc to 1.5450 and versus the pound to around 68.70 Against the yen, the single European currency fell to lows around 135.20 yen from 135.65. The dollar also dipped against the Japanese currency to 107.80 yen. Traders had expected the market reaction to be somewhat limited with dealers in both London and New York out for national holidays on Monday. BAD FOR MARKETS? France's referendum and another anticipated vote against the EU constitution by The Netherlands on Wednesday have weighed on the euro in the past few weeks, adding to damage to the currency from sluggish economic growth in the euro zone. Some analysts said the French "Non" to the EU has thrown the euro zone into a political crisis that would weigh on the currency and regional financial markets. "Euro zone financial markets are going to feel a chill wind right across the board. Euro zone stocks and bonds are not going to be spared," said David Brown, chief European economist at Bear Stearns in London. But not all agreed that the fate of the EU constitution would have much significance for investors. "There's too much fixation on the French referendum," said Stephen Jen, Morgan Stanley's chief global currency strategist, in a research note before the vote. The dollar has gained the upper hand against major currencies this year as the Fed's steady lifting of U.S. interest rates has lured funds to the dollar, helping to snap a three-year slide. With the currency market's focus switched to rising U.S. rates from the swelling current account deficit, the dollar has gained more than 8 percent against the euro this year and 5 percent vs the yen. The Fed has lifted its funds rate eight times since June to 3 percent and is expected to raise rates to at least 3.5 percent this year. That compares with 2 percent in the euro zone and virtually zero percent in Japan. |
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