LONDON: The euro slipped against the dollar on Friday on the back of steep losses in European shares, remaining at risk of more selling if the global economic outlook deteriorates further and the financial funding picture worsens.
The Swiss franc edged up, benefiting from demand for currencies perceived to offer a safe haven, although its gains were capped by ongoing speculation Swiss authorities will again step in to rein the currency in.
Investors have been dumping higher-risk assets as weak US economic data has added to the view the global economic recovery is stuttering, while concerns that euro zone policymakers are dragging their feet over the region's debt problems is also seen weighing on the single currency.
Many analysts expect the dollar, which has also struggled due to US fiscal problems, will be supported on the view that the world's most liquid currency will rise if signs grow that financial institutions may be facing funding problems.
"Funding pressures are definitely visible in the euro area because of the vicious circle between the sovereign debt crisis and the knock-on effects on the financial system due to euro zone banks' holdings of sovereign debt," said Raghav Subbarao, currency strategist at Barclays Capital.
"That's something that's definitely a pressure on the euro." He added: "If funding pressures intensify radically, the dollar is the safe-haven currency. When it's a question of liquidity, and not solvency, the dollar will benefit."
Analysts said investors were becoming highly sensitive to signs of funding strains, following news earlier in the week that an unnamed euro zone bank had borrowed $500 million in one-week funds from the European Central Bank.
That has sent interbank lending rates soaring with the $ Libor/OIS spread blowing out to 19 basis points, the highest level in 12 months. Three-month Libor struck four-month highs at 0.29778 per cent.
Other signs of possible funding issues were highlighted by news the Swiss National Bank had tapped its currency swap line with the Federal Reserve in the past week. This was the first time the Fed has provided liquidity to a foreign central bank since early March.
The euro traded 0.2 per cent lower on the day at $1.4310, having fallen as low as around $1.4260 in earlier trade.
