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RPT-FOREX-Euro hits 1-wk low as Fed policy differs with ECB cash infusion
March 1, 2012 / 9:39 PM / 6 years ago

RPT-FOREX-Euro hits 1-wk low as Fed policy differs with ECB cash infusion

 * Euro hits one-month low choppy trading
 * ECB liquidity injection seen weghing on euro
 * U.S. and overseas data weighs on risk tolerance
 * Bernanke gives no QE hint

 (Updates prices, adds quotes; Refiles to add dropped word in
headline)	
 By Julie Haviv	
 NEW YORK, March 1 (Reuters) - The euro fell to its
lowest level in a week against the dollar on Thursday
as U.S. data showed the economy lost steam earlier this year but
remained in better shape than the euro zone.	
 A recent string of robust U.S. data and comments by Federal
Reserve Chairman Ben Bernanke have downplayed, but not erased,
expectations of more monetary easing. That contrasts with the
European Central Bank's massive cash infusion on
 Wednesday via its Longer Term Refinancing Operation.	
 Reports showed U.S. manufacturing cooled in
February and consumer spending was flat in January for a third
straight month. Other data, though, showed new claims for
jobless benefits fell to a near four-year low last week while
reports from retailers and automakers on February sales were
also upbeat. 	
 However, prospects for a sustained economic recovery around
the globe darkened as sputtering factory activity in Europe
overshadowed more positive data from Asia. 	
 European policymakers have made some progress in combating
Europe's debt crisis, contributing to a fall in European bond
yields and a rise in the currency. But the euro's gain has not
been accompanied by a supportive shift in the euro zone's
relative monetary policy fundamentals, said Nick Bennenbroek,
head of currency strategy at Wells Fargo in New York. 	
  "As a result, we believe a gap has emerged between the
value of the euro and the respective monetary policy stances of
the European and U.S. central banks," he said. "With the
divergent monetary policy views likely to persist, we expect a
renewed weakening in the euro, a decline that may not be far
away."	
 Bennenbroek said he targets EUR/USD at $1.3000 in three
months and $1.2200 in 12 months.	
 The euro was last down 0.2 percent at $1.3304 after
touching a one-week low of $1.3280, breaking near-term support
at its 100-day simple moving average of $1.3293. 	
 The euro hit a three-month high of $1.3485 on
 Wednesday, according to Reuters data. The euro also posted
its best monthly performance in February since October. 	
 "The euro is now in a consolidation phase after a position
squeeze that started last week," said Greg Anderson, G10
strategist at CitiFX, a division of Citigroup, in New York.	
 "This consolidation should leave the euro at around $1.3250
by Friday's close," he predicted.	
 Testimony from Federal Reserve Chairman Ben Bernanke to a
Senate panel was closely watched but had minimal impact.	
 Repeating Wednesday's prepared remarks, the Fed chairman
cautioned that the recent steep drop in the U.S. unemployment
rate was unlikely to continue given a still-soft economy, but he
stopped short of signaling a further easing of monetary policy. 	
 Another round of asset purchases, or quantitative easing,
would be negative for the dollar as it is tantamount to printing
money. That contrasts with the ECB's recent cash infusion via
its Longer Term Refinancing Operation.	
 "One can argue that the market may be interpreting the LTRO
as a form of QE and we are getting a whiff of that in today's
trading," said CitiFX's Anderson. 	
 	
 EU SUMMIT	
 Attention on Thursday also turned to a European
Union summit and a meeting of euro-zone finance ministers amid
discussion of  Greece's progress on meeting the terms of its
latest bailout. 	
 Traders reported early euro selling by Asian central banks
and macro funds, with many cutting euro positions as the ECB's
injection of 530 billion euros in three-year funds had been
broadly priced in. 	
 The dollar was last down 0.1 percent at 81.08 yen,
remaining close to a nine-month high touched on
 Monday as the yen remains under pressure after Bank of
Japan easing measures.	
 UBS strategists said they expect the Fed to normalize rates
much earlier than the Bank of Japan, a policy divergence that
should lead to a widening of the gap between two-year Treasuries
and Japanese government bond yields.	
 The yield gap has a tight correlation with the dollar/yen
pair and a widening should see the dollar drift higher. As such,
UBS expects the dollar to rise to 85 yen by 2012 and 90 yen by
2013 and repatriation flows ahead of the Japanese financial year
end in March are unlikely to be supportive of the currency.	
  	
 

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