NEW YORK, March 1 (Reuters) – The euro fell against the U.S. dollar on Monday, led by a massive selloff in sterling and as uncertainty remained over a bailout package for debt-strapped Greece.
The pound fell to a 10-month low versus the greenback and was on track for its biggest one-day drop in a year after a poll showed increased risk that no party will win a majority in this year’s general election, triggering fears decision-making would become stymied. For details, see [ID:nLDE61R07C]
Having broken through the key $1.50 level, the pound dropped roughly 3 percent on the day at one point, with traders citing selling by a UK bank after UK insurer Prudential Plc (PRU.L) said it would buy American International Group Inc’s (AIG.N) Asian life insurance business.
The euro had been steady earlier in the global session amid hopes that Greece may be nearing a deal with EU governments to take more budget steps in exchange for some form of emergency aid, although analysts said the lack of any concrete developments suggests the currency’s upside remained limited.
“The moves in euro/dollar are being largely driven by what’s going on in sterling against the dollar,” said Omer Esiner, senior market analyst for Travelex Global Business Payments in Washington. “We’re seeing the pound down almost 2.5 percent against the dollar, and that’s helping support the greenback in most of its major crosses.”
In early New York trading, the euro EUR= fell 0.6 percent to $1.3539, with declines accelerating from around $1.3600.
The pound GBP=D4 traded 2.1 percent lower at $1.4931, on track for its biggest one-day decline since March 2009. It had earlier tumbled as low as $1.4781.
“The moves we are seeing this morning are all sterling-driven,” said Ian Stannard, currency strategist at BNP Paribas in London. “Key levels are breaking in the pound as the economic and political picture in the UK is bleak.”
Market participants also used weaker-than-expected data on UK mortgage approvals as another reason to knock the pound to a three-month low against the euro EURGBP=D4.
EURO SHORT POSITIONS
The euro had been helped earlier by speculation that a visit by EU Economic Affairs Commissioner Olli Rehn and European Central Bank Executive Board member Juergen Stark to Athens could move EU governments closer to a deal. [ID:nLDE6200RI]
But uncertainty remained over whether the other governments will agree on support as German Chancellor Angela Merkel stressed that no decision had been taken. [ID:nLDE61R0BX]
“A possible deal with Greece is helping, but it is not enough to remove the worries about the debt situation in southern Europe, and it has not sparked a strong euro rally,” said Niels Christensen, currency strategist at Nordea in Copenhagen.
Traders said sentiment on the euro remained negative. Data from the Commodity Futures Trading Commission showed net short euro positions rose to a fresh record in the week to Feb. 23. [IMM/FX] (Additional reporting by Neal Armstrong and Naomi Tajitsu in London; editing by Jeffrey Benkoe)
