Reuters: US Dollar Report: FOREX-Dollar gains after Fed, weaker German data

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FOREX-Dollar gains after Fed, weaker German data Jun 21st 2012, 13:55 Thu Jun 21, 2012 9:55am EDT * Fed extends Twist, leaves easing options open * Euro drops to session low after German PMI * Spanish borrowing costs hit new highs at auction * Dollar hits 5-week high vs yen By Gertrude Chavez-Dreyfuss NEW YORK, June 21 (Reuters) - The dollar rose against the euro and yen after the Federal Reserve disappointed investors betting it would ease more aggressively given the recent spate of weak U.S. economic data and a persistent euro zone debt crisis. The euro came under fresh pressure after data showed Germany's private sector shrank in June for the second month running, with manufacturing activity hitting a three-year low. This suggested Europe's largest economy may contract in the second quarter as the euro zone debt crisis intensified, and offset data from France which showed a slowdown in business activity there had eased. Overall, the weak euro zone data kept alive speculation the European Central Bank will cut interest rates, offering investors a fresh excuse to sell the euro. Camilla Sutton, chief currency strategist, at Scotia Capital in Toronto, said the U.S. dollar firmed because the "Fed failed to move to more aggressive (and) policy and global growth fears have come back into the spotlight on the back of disappointing PMIs (manufacturing data)." The euro dropped 0.6 percent to $1.2627, having hit a high of $1.2744 on Wednesday. Bids from sovereign investors and macro funds were cited below $1.2620. Offers were reported above $1.2700 and stop-loss orders above $1.2720, traders said. The Fed on Wednesday expanded "Operation Twist", under which the Fed sells short-term securities to buy longer-term ones to keep long-term borrowing costs down, by $267 billion. The program, which was due to expire this month, will run until the end of the year. A Reuters poll done after the Fed decision showed that Wall Street firms still see a 50 percent chance of another round of quantitative easing. The dollar index, a measure of the greenback's performance against a basket of currencies, rose 0.3 percent to 81.859. Analysts, however, said the dollar's outlook was clouded, with more players likely to position for fresh Fed stimulus after the central bank downgraded its U.S. growth forecast. The dollar hit a five-week high against the yen at 80.26 , its highest since mid-May. It was last at 80.24, up 0.9 percent on the day. The euro also posted gains versus the yen, rising to 101.34, up 0.3 percent. Greg Michalowski, chief analyst at broker FXDD, said the currency pair just breached the 80.14 yen level, the 38.2 percent retracement of the move down from the March 2012 high. He added that the next target for the dollar is the 100-day moving average at around 80.39 yen. On the fundamental side, one possible factor for the yen's weakness was the approval by Japan's lower house of two dovish nominees to the Bank of Japan policy board. Scotia Capital in a note said the nominees are known to favor further easing in order to support the Japanese economy, which could mean an expansion in the BoJ's asset purchase program over the coming months, likely to be announced at the next meeting on July 12th. SPAIN IN FOCUS Many analysts said the Fed was probably saving ammunition given the risk the euro zone crisis could deteriorate in coming weeks as borrowing costs in peripheral countries remain high. Spain's borrowing hit a new euro era high at an auction on Thursday, a few hours before it sheds light on the state of its banks and possibly makes a formal request for funds to bail out the sector. "What we had from the Fed is that further easing is still likely but the market is a bit uncertain about how that easing will come," said Michael Sneyd, FX strategist at BNP Paribas. "We think euro/dollar can squeeze higher from here but we prefer being long commodity currencies against the dollar." Growth-linked currencies came under pressure, digesting the Fed decision and weak Chinese data. The Australian dollar fell 0.3 percent to US$1.0160, retreating from a seven-week high of $1.0225 hit on Wednesday. The Aussie dollar hit an intraday low after a private-sector survey showed China's factory sector contracted for an eighth successive month in June, with export orders at their weakest since early 2009. Link this Share this Digg this Email Reprints

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