Euro soft as investors bid up safe havens on Turkish crisis

File photo illustration of various Euro banknotes lying next to various Swiss Franc notes at a bank in Warsaw, July 18, 2011. — Reuters pic
File photo illustration of various Euro banknotes lying next to various Swiss Franc notes at a bank in Warsaw, July 18, 2011. — Reuters pic

BERLIN, Aug 13 — The euro was frail after touching a 13-month low against the dollar this morning as investors bid up safe havens such as the US dollar and the yen on worries about the exposure of European banks to crisis-hit Turkey.

After hitting a record low of 7.24 against the dollar early this morning, Turkey's lira found some support after Finance Minister Berat Albayrak said Turkey has drafted an economic action plan to ease investor concerns and the banking watchdog said it limited swap transactions.

The euro has been hit hard after the Financial Times reported on Friday, citing two sources, that the European Central Bank had concerns about banks in Spain, Italy and France and their exposure to Turkey.

"The exposure of European banks to Turkey seems to be not as large as people fear, so I think it's manageable. It will not lead to a kind of banking crisis in the euro area," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.

In early trade this morning, the euro dropped as low as US$1.1368 (RM4.64), falling to its lowest level against the dollar since July last year. It last traded down 0.16 per cent at US$1.1390 at 0040 GMT.

The common currency also slipped against the safe haven Swiss franc and yen.

The euro briefly fell to a one-year low of 1.1302 francs against the Swiss franc before paring some losses. It traded at 1.1332 francs as of 0040 GMT, down about 0.2 per cent on the day.

The euro dipped to a 10-week low of 125.455 Japanese yen in early trade before recovering slightly. It was last down 0.4 per cent at 126.00 at 0040 GMT.

Turkey's lira last traded at 6.84 against the dollar at 0040 GMT, after sinking to a record low of 7.24 in early trade this morning.

The currency has fallen about 45 per cent against the greenback this year on worries over Turkish President Tayyip Erdogan's increasing control over the economy and a deepening rift with the United States.

The Mexican peso, Argentine peso and South African rand were also weak against the US dollar this morning as the lira crisis unsettled some other emerging market currencies.

Yamamoto said the Turkish lira may remain unstable, while he expected the euro to stabilise during the week.

"It seems that this kind of slowdown is a kind of necessary thing for the Turkish economy to reduce the current account deficit and the very high inflation," he said.

The yen strengthened about 0.3 per cent against the dollar to 110.61 yen as investors continued to bid up safe-haven assets. The Japanese currency pared some gains after briefly rising to a one-month high of 110.32 yen per dollar.

The Australian dollar was down 0.2 per cent at US$0.72765 , close to an 18-month low of US$0.72505 hit early in the session. — Reuters