March 7, 2013 / 9:52 AM / 5 years ago

FOREX-Euro rises but still vulnerable before ECB

* Dollar settles near 6-1/2 month high vs basket of
    * Euro pares losses before ECB decision, stays vulnerable
    * ECB seen holding rates when decision announced at 1245 GMT
    * Sterling struggles on BoE easing prospects, BOJ on hold

    By Anooja Debnath
    LONDON, March 7 (Reuters) - The euro edged up against the
dollar on Thursday as some sovereign investors pared recent bets
against the single currency before a European Central Bank
interest rate decision.
    Traders, though, said gains were likely to be fleeting and
the euro could weaken towards three-month lows against the
dollar if ECB chief Mario Draghi hints at interest rate cuts at
his press conference at 1330 GMT. 
    Traders also said there was an outside risk the euro could
rebound slightly if Draghi did not sound too downbeat about the
euro zone's prospects.  
    Even so, the euro is likely to struggle at higher levels
given investors are snapping up the dollar on the back of good
U.S. economic data and expectations the U.S. federal Reserve may
halt its asset purchase programme towards the end of the year.
    In contrast, the ECB is likely to downgrade its staff
projections for inflation and growth, all of which could see
interest rate differentials move in favour of the dollar.
    The central bank, which meets in Frankfurt against a
backdrop of political deadlock in Italy, is however, expected to
keep rates on hold for now. 
    The euro was up 0.4 percent at $1.3023. But it stayed
susceptible to losses and could retest last week's near
three-month low of $1.2966. That is serving as a support for
now, below which the euro could fall to December's low of
$1.2876. Resistance was cited at $1.3126, the euro's 100-day
moving average.
    "We don't expect anything from the ECB but a small minority
is looking for a rate cut today and that is partially built into
the price," said Adam Cole, global head of FX strategy at RBC
Capital Markets. "If the ECB stays on hold, we could probably
see a small bounce in the euro." 
    The dollar index last stood at 82.343, having risen
as high as 82.604, its highest since Aug. 20, in late Wednesday
trade. It has rallied more than 4 percent from this year's
trough of 78.918 plumbed on Feb. 1. 
    The U.S. currency was helped by solid jobs data on Wednesday
fuelling optimism of an economic recovery which could prompt the
Federal Reserve to wind up its massive stimulus programme. 
    Sterling meanwhile fell to a 2-1/2-year low earlier on
Thursday, as some in the market positioned for more stimulus
from the Bank of England as early as on Thursday as the British
economy faces the threat of a triple-dip recession. 
    The pound was down 0.2 percent against the dollar at
$1.4985, close to $1.4965, its lowest since mid-July
    Better-than-expected U.S. jobs data on Wednesday bolstered
hopes that Friday's U.S. non-farm payrolls will surprise on the
upside and the Fed might be the first major central bank to pull
the plug on stimulus, while the others continue to ease.
    "One reason the dollar is broadly strong could be that while
the world's many other central banks are eyeing more easing, at
least at the Fed the debate is about exiting from stimulus, not
doing more of it," said Teppei Ino, currency analyst at the Bank
of Tokyo-Mitsubishi UFJ. 
    Earlier on Thursday, the Bank of Japan stayed on hold
although the yen weakened against the dollar on expectations of
aggressive policy easing in the future. 
    Against the yen, the dollar was flat at 94.00, moving
closer to a 33-month peak of 94.77 reached on Feb. 25.
    But hefty selling above 94 yen, from option traders as well
as Japanese companies repatriating overseas profits ahead of
their March 31 book-closing, could cap further gains.  
   The BOJ meeting on Thursday was the last policy meeting
chaired by outgoing Governor Masaaki Shirakawa, with markets
expecting fresh stimulus measures at one of its meetings in
April under a new governor.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below