Reuters: US Dollar Report: FOREX-Dollar index hits 1-month low, euro supported

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FOREX-Dollar index hits 1-month low, euro supported Mar 30th 2012, 11:08 Fri Mar 30, 2012 7:08am EDT * Dollar index falls to 1-month low * Euro rises, but vulnerable to euro zone debt worries * EU ministers meet to boost rescue fund, Spain budget ahead By Jessica Mortimer LONDON, March 30 (Reuters) - The dollar fell to its lowest in a month against a basket of currencies on Friday, extending falls made on expectations of more U.S. monetary stimulus and helping the euro hold its ground as the bloc agreed steps to prevent the debt crisis spreading. Euro zone finance ministers agreed on Friday on a temporary increase in the capacity of their bailout funds to prevent a new flare-up of Europe's sovereign debt crisis, but markets may judge it too small to be convincing. That left the euro still vulnerable to further selling pressure on concerns about unsustainable debt levels in some euro zone countries. Market players are focusing on Spain's budget, in which the government is expected to announce harsh austerity measures in a bid to get the country back on a sustainable fiscal path, despite popular resistance. The dollar index fell to a one-month low of 78.727, remaining under pressure after dovish comments from Federal Reserve chairman Ben Bernanke and softer U.S. economic data this week raised expectations of further monetary stimulus. The index was on course for its biggest quarterly fall since the second quarter of last year. The euro was up 0.3 percent against the dollar at $1.3345, near a one-month peak of $1.3385 hit earlier this week. A euro zone agreement, coupled with Spain's budget announcement, expected around 1100 GMT, could boost it further in the short-term, traders and analysts said. Traders said a reported options barrier at $1.34 could limit its rise. "Raising the size of the euro zone bailout fund will be supportive for the euro, although the market is already aware of it," said Audrey Childe-Freeman, currency strategist at JP Morgan Private Bank. She expected any rise would be limited and saw the euro staying within its recent range below $1.35 and above $1.30. Traders said the dollar was also weighed down by selling related to month-end moves by portfolio investors. The Chicago purchasing managers' index, personal consumption and expenditure data and the University of Michigan sentiment survey, due later on Friday, could weigh on the dollar if they are below forecasts. The dollar also hit a one-month low versus the Swiss franc while against the yen it was down 0.45 percent at 82.01 yen, having hit a three-week low of 81.830 yen. Even though this year's dollar rally against the yen has lost steam over the last three weeks, the greenback was still poised to end the Jan-March quarter nearly 7 percent stronger. The Japanese yen has come under steep selling pressure since the Bank of Japan unexpectedly eased monetary policy last month. Sterling also hit a 4-1/2 month high versus the U.S. currency, while the higher-yielding Australian dollar gained 0.4 percent and the New Zealand dollar 0.6 percent. EURO STILL VULNERABLE The euro has risen more than 3 percent this quarter against the dollar, leaving it on track for its best quarterly performance in a year, benefiting after the European Central Bank's second injection of cheap long-term funds which helped ease euro zone debt worries. Many analysts expect the euro could resume its decline in the coming quarter on concerns about indebted peripheral countries and the prospect that a large country like Spain or Italy may need help. Even if Spain agrees tough deficit reduction measures on Friday there are fears this will damage an already anaemic economy. "The key question is whether it is possible for those countries to compete on the global market," said Anders Soderberg, currency strategist at SEB in Stockholm. "For each set of austerity measures they announce the economy takes a step lower". The euro was down 0.1 percent against the yen at 109.47 yen , though it pulled away from a trough of 108.76 hit on Thursday, its lowest in one week. Link this Share this Digg this Email Reprints

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