Euro Stabilizes After Dutch No Vote

The under-fire euro dragged itself higher in European morning trade on Thursday after plummeting to new lows overnight as the Dutch followed the French in voting against the proposed European constitution.

The euro tumbled to a fresh eight-month low of $1.2168 against the dollar as the magnitude of the Dutch rejection - 62 per cent versus 38 per cent - became clear.

This took the euro's losses so far this week to 4.1 cents as the rejection of further European integration by two of the founder members of the European Union prompted speculative talk as to whether European Monetary Union might one day be reversed.

Paul De Grauwe, international economics professor at Leuven University in Belgium, and an adviser to Jose Manuel Barroso, the president of the European Commission, fanned these flames still further on Thursday when he was quoted as saying: "Without political integration, the eurozone is a roofless house that becomes increasingly uncomfortable. Many inhabitants will want to leave the house sooner or later."

Nevertheless the predominant market view was that the dollar's rise against the euro had become overstretched, particularly ahead of the uncertainty of Friday's US payrolls data.

With some arguing that the euro's wobble after the Dutch "nee" vote was simply a "neejerk" reaction, the euro recovered almost a cent to sit at $1.2261. The shared currency also recovered Y0.2 to Y132.74 against the yen and 0.2p to £0.6756 versus sterling.

The dollar was broadly soft, slipping to $1.8142 against sterling, having hit a fresh seven-month high of $1.8085 overnight, and dipping Y0.3 to Y108.29 against the yen.

Dollar-longs positions may have been trimmed after Richard Fisher, a new member of the US Federal Reserve said: "We're clearly in the eighth inning of a tightening cycle" and "we have the ninth inning coming up at the end of June," using a baseball analogy to suggest a pause in Fed tightening after a likely ninth straight rate hike later this month.

Not everyone was convinced, however. "It is widely doubted that Mr Fisher's words are the views of the whole FOMC," said Chris Gothard, currencies strategist at Brown Brothers Harriman. "This new Fed member has probably also been a little naive."

The Australian dollar recovered 0.2c to $0.7513 against the greenback as the Australian trade deficit narrowed more sharply than expected to A$1.3bn in April from A$2.6bn in March.