* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, May 5 (Reuters) - The euro weakened across the board
on Tuesday after a German consitutional court ruled that the
Bundesbank must stop buying government bonds if the European
Central Bank cannot prove those purchases are needed.
The decision did not apply to the ECB's latest
pandemic-fighting programme, a 750 billion euro scheme to prop
up the economy, but the ruling unsettled financial markets,
which had been calmed by aggressive ECB asset purchases to
prevent the coronavirus crisis leading to an economic meltdown.
The single currency EUR=EBS fell 0.7% to $1.0826 in the
wake of the ruling and is on track for its biggest single-day
drop since the beginning of April, Refintiv data showed.
"Markets don't seem to like anything that the ECB can't fix,
but as things stand at the moment, this is a pretty big bump in
the road," said Andrea Cicione, head of strategy at TS Lombard
in London.
"People like us are going through the decision, trying to
understand what it means for possible countermoves by the ECB
and while this takes place, markets do not like uncertainty and
that's why they're reacting negatively."
Also hurting the euro was the presence of a large long
position in the single currency which has intensified the
selling pressure.
Latest positioning data showed bullish euro bets were at
their biggest level in nearly two years.
But the euro currency has weakened by more than 5% from more
than one-year highs of nearly $1.15 hit in March.
Nomura strategists recommend a short position in euro/dollar
expecting the single currency to weaken to $1.06 over the coming
months.
The euro's drop pushed the dollar higher for a second
consecutive day with the dollar index =USD rising 0.4% to
99.91.
"It illustrates the difficulties versus the Fed for example;
the Fed has no such constraints of U.S. states challenging QE
(quantitative easing) there," Societe Generale strategist
Kenneth Broux said.
The dollar's gains were also supported after U.S. President
Donald Trump stepped up verbal attacks on China, raising fears
of a new trade war.
The Australian dollar AUD=D3 edged up more than 64 cents
to $0.6454 after the Reserve Bank of Australia left its targets
for the cash rate and three-year government bond yields
unchanged at 0.25%. But the bank forecast the Australian economy
would suffer its largest ever contraction in the first half of
the year.
Other commodity currencies like the Norwegian crown NOK=D3
also advanced as oil prices bounced.
U.S. crude rose CLc1 6.6% and Brent LCOc1 around 5% as
production fell and countries around the globe including Italy,
Finland and several U.S. states eased lockdown restrictions.
O/R
Trading was light because of public holidays in Japan and
China. The yuan CNH=D3 rose to 7.1195 per dollar in offshore
trade, recovering from a six-week low of 7.1560 hit in the
previous session, but well below the range it was in last month.
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Euro positions IMAGE https://tmsnrt.rs/2WnABDG
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