LONDON (AFX) - The euro hit a new six-month low of 0.8420 against the dollar in early trade, pressured by Morgan Stanley index changes, dealers said.
Chris Furness, senior currency economist at 4CAST said that Morgan Stanley's overnight comments that it will reduce European government bonds exposure from 41 pct to 33 pct, represented a huge reduction. He added: "Morgan Stanley is reducing its European exposure, which obviously was yet another reason to sell the euro, which hit a new 6-month low this morning at 0.8420 usd."
Analysts at WestLB cautioned that while speculative accounts are running slight euro short positions, fixed income investors remain overweight euro relative to their benchmark, which may trigger further capitulation trades.
They predicted that should Thursday's Irish referendum on the Nice Treaty end with a 'No' vote, the single European currency would come under further pressure.
Participants awaited "door-stepping comments" from finance ministers attendi ng the Ecofin meeting in Luxembourg today. On economic news, today's euro zone Purchasing Managers Index services sector fell to a record low of 52.2 in May from 53.0 in April, according to market sources.
Despite the reading being the lowest in the index's 35-month existence, the figure shows that the services sector is still expanding.
Meanwhile, sterling/dollar remained on a downtrend, led lower by a weaker euro/dollar, ahead of the UK Purchasing Manager Index services for May.
Sentiment towards sterling/euro remains upbeat as recent economic data confirmed a strong UK domestic demand, according to analysts. Today's UK house price survey from Halifax further underpinned market sentiment as prices showed a seasonally-adjusted rise of 1.5 pct in May from April and 7.3 pct rise from a year earlier.
The Halifax added that the recent series of mortgage rate cuts had stimulated the pick-up in house prices since the start of the year.