Reuters: US Dollar Report: FOREX-Dollar rises vs euro but gains vulnerable

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FOREX-Dollar rises vs euro but gains vulnerable Mar 27th 2012, 13:42 Tue Mar 27, 2012 9:42am EDT * Bernanke comments seen keeping alive chances of QE3 * U.S. home prices unchanged in January * Euro zone worries persist ahead of finance ministers' meeting By Luciana Lopez NEW YORK, March 27 (Reuters) - The dollar firmed slightly against the euro on Tuesday after a drop in the previous session on dovish comments from Federal Reserve Chairman Ben Bernanke, but those gains were vulnerable to U.S. consumer confidence data due later in the day. The greenback's advance came amid choppy, range-bound trading as investors parsed Bernanke's caution on Monday that the U.S. economy needs to grow more quickly to bring the unemployment rate down lower. Bernanke's comments fanned hopes the Fed could ease policy further, perhaps through another round of quantitative easing. Until markets have more clarity on the Fed's plans, though, trading could stay constrained, said Dean Popplewell, chief currency strategist at OANDA. "Until the words 'QE' are actually uttered by the Fed, you play the ranges, and we're hoping that the topside is somewhat contained if you're a bear," he said. Analysts said the dollar may suffer further short-term falls if speculation over a third bout of quantitative easing persisted, but any data pointing to a pick-up in U.S. economic activity could see the currency claw back losses. "The economy is doing a lot better than many people thought and the market is going to run with that, but the Fed will not stand around while U.S. yields back up significantly," said Neil Mellor, currency strategist at Bank of New York Mellon. "There will be a cat and mouse game between the market and Bernanke, I think the dollar will be in a range for some time." A recent run of better-than-expected U.S. economic data prompted Treasury yields to rise in March, pushing the dollar higher as its appeal as a funding currency dimmed. But U.S. single-family home prices were unchanged in January, suggesting the battered housing market continues to crawl along the bottom, a closely watched survey said on Tuesday. The next data focus for market players will be U.S. consumer confidence figures at 10 a.m. U.S Eastern time (1400 GMT). "The markets are basically trading in this contained range until they actually find something to hold onto," Popplewell said. The euro zone sovereign debt crisis could still weigh on the single currency, as well. While Germany signaled for the first time on Monday its willingness to increase the resources available for tackling the euro zone debt crisis, several key events remain this week. Those include a meeting of euro zone finance ministers in Copenhagen on March 30-31 and Spain's budget presentation on Friday. The meeting of finance ministers "could result in some near term volatility," said Omer Esiner chief market analyst with Commonwealth Foreign Exchange in Washington, D.C. "It's hard to push the euro up further from these levels without some catalyst." The euro slid 0.19 percent to $1.3332 on Tuesday. The single currency rose 0.3 percent to 110.96 yen. YEN STEADIES AFTER DROP Traders and analysts said moves in U.S. Treasuries would be key for the dollar. If demand for Treasuries gained steam and bond yields fell in the wake of Bernanke's comments, the dollar could face more pressure. The greenback was up 0.48 percent against the yen at 83.23 yen, below a recent 11-month high of 84.19 yen. The Japanese currency was seen as vulnerable to more selling, and has been under heavy pressure since Japan announced monetary easing measures last month. Link this Share this Digg this Email Reprints

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