FOREX-Euro set for biggest monthly drop since mid-2019 on economy fears

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Saikat Chatterjee
LONDON, March 29 (Reuters) - The euro languished below $1.18
on Monday as the prospect of tougher coronavirus curbs in France
and Germany weighed on the short-term outlook for the European
economy.
The common currency is headed for its biggest monthly drop
since mid-2019 as Europe's faltering vaccination programme runs
into a wave of new infections even as positioning data showed
investors remain heavily long euros. and
The euro EUR=EBS was down 0.1% in early London trading at
$1.1774, not far above last week's four-and-a-half-month trough
of $1.1762. On a monthly basis, it is down 2.3%, its biggest
fall since July 2019.
Compounding the single's currency woes has been the widening
interest rate differentials between German and U.S. yields with
the spread between 10-year debt widening to 200 bps from 150 bps
at the start of the year, boosting the greenback.
"Much focus will remain on the virus situation in Europe and
whether lockdowns can slow rising case numbers and also whether
the slow pace of vaccinations can finally reach exit speed," ING
economists said in a daily note.
The dollar held firm broadly against its rivals as a slight
risk-off sentiment rippled through global markets with U.S.
stock futures in negative territory in quiet quarter-end
rebalancing flows.
Against a basket of its rivals =USD , the dollar steadied
at 92.810, just below a November 2020 high of 92.92 hit last
week.
Weekly positioning data showed the broad trend of growing
dollar bullishness remained firmly in play with hedge funds
cutting their overall short dollar bets to their lowest levels
since June 2020 while ramping up their bearish bets on the yen.
Virus-driven caution also helped the dollar higher against
the Australian dollar, New Zealand dollar and sterling and it
rose against oil-liked currencies as the re-floating of the ship
blocking the Suez Canal pushed crude prices down by about 1.5%.
The Aussie AUD=D3 was last down 0.3% at $0.7621 on Monday
and the New Zealand dollar NZD=D3 had dropped 0.3% to $0.6978,
while sterling GBP= slipped 0.2% to $1.3767.
"The U.S. is also being helped on its own by some pretty
good economic data, fantastic rollouts of vaccines, good pace of
vaccination and (positive) stock markets," said Westpac currency
analyst Imre Speizer.

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