* 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 euro EUR=EBS slipped 0.2% in London trading at
$1.1774, nearing last week's four-and-a-half-month trough of
$1.1762. On a monthly basis, it is down 2.3%, its biggest drop
since July 2019.
Compounding the single's currency woes have been the
widening interest rate differentials between German and U.S.
yields. The spread for 10-year debt widened to 200 basis points
from 150 bps at the start of the year, boosting the dollar.
"In a nutshell, the U.S. economy is much stronger and miles
ahead in the immunization game compared to Europe's and Japan's,
and this ultimately translates into the Fed normalizing policy
years before the ECB or the BoJ," said Marios Hadjikyriacos, a
strategist at brokerage XM.
The euro's woes have worsened as Europe's faltering
vaccination programme runs into a wave of new infections, even
as positioning data showed investors remain heavily long euros,
a bearish sign for investors. and
"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 against other currencies as a slight
risk-off sentiment rippled through global markets, with U.S.
stock futures in negative territory in quiet quarter-end
rebalancing flows.
YEN SHORTS GROW
Against a basket of currencies =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 in play. Hedge funds cut their
overall short dollar bets to their lowest levels since June 2020
while ramping up their bearish bets on the yen.
Short yen positions have grown in recent weeks with hedge
funds building their net short bets to 33% of open interest,
according to ING data.
Steadying stock markets offered some support for the yen,
but falling bond yields and expectations of a global economic
rebound have rekindled short bets. The yen is among the worst-
performing currencies so far this quarter, down 6% loss the
dollar.
Virus-driven caution also helped the dollar higher against
the Australian and New Zealand dollars and sterling, and it rose
against oil-linked 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.
Sterling GBP= slipped 0.2% to $1.3767.
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World FX rates https://tmsnrt.rs/2RBWI5E
Yen positions https://tmsnrt.rs/3fkjRZ6
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