Reuters: US Dollar Report: FOREX-Dollar drops for 2nd day vs euro as investors embrace risk

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FOREX-Dollar drops for 2nd day vs euro as investors embrace risk Jun 7th 2012, 18:58 Thu Jun 7, 2012 2:58pm EDT * Fed's Bernanke refrains from offering stimulus hint * Surprise China rate cut boosts some riskier currencies By Julie Haviv NEW YORK, June 7 (Reuters) - The dollar fell against the euro for a second straight day on Thursday after Federal Reserve Chairman Ben Bernanke kept further stimulus measures on the table and as China's central bank took action to boost growth, spurring investors to embrace risk. Trade was choppy, with the euro earlier hitting a two-week high after China's central bank cut benchmark interest rates to support growth in the world's second-largest economy. Also on Thursday, the Fed's Bernanke said the U.S. central bank was ready to shield the economy if financial troubles mount, but offered few hints that further monetary stimulus was imminent. Bernanke, however, also said the Fed is ready to act if Europe's crisis deepens. "Bernanke didn't provide much in terms of details, so further policy still hinges on economic data," said Mark McCormick, G-10 currency strategist at Brown Brothers Harriman in New York. "The two points Bernanke stressed - the euro zone and the looming U.S. fiscal cliff - could mean an easing announcement at its meeting later this month," he said. "I do not foresee another round of Fed quantitative easing, but perhaps through a communication channel or an extension of Operation Twist." Operation Twist involves the Fed exchanging short-term Treasuries for long-term bonds. Meanwhile, German Chancellor Angela Merkel said Europe was ready to act to ensure stability in the euro zone as Spain's credit rating was cut by three notches amid expectations it may soon seek EU help for banks beset by bad debts. The euro was last changing hands at $1.2596, up 0.2 percent on the day. The euro earlier peaked at $1.2625, according to Reuters data, its highest level since May 23. Against the yen, the euro also hit its highest level since May 23, at 100.61 yen, before paring gains to trade at 100.28 yen, up 0.7 percent. Before Bernanke began his testimony to Congress, trading had been influenced by China's twin surprises on interest rates, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set deposit rates. "Rate cuts in China serve to reduce China's exposure to global weakness," said Douglas Borthwick, managing director of Faros Trading in Stamford, Connecticut. "Rate cuts in combination with a stimulus program - still to be announced, should shelter Asia somewhat from global weakness and should help keep a bid to Asian growth and currencies." Decent demand at a Spanish bond auction and expectations that European policymakers may take further steps to support the global economy also buoyed the euro. The global economy has floundered in recent weeks. Risks to growth have mounted on concerns about a possible Greek exit from the euro zone and the fragility of the Spanish banking system, putting pressure on euro zone politicians and global central banks to come up with a credible policy response. Speculation that Spain could become the fourth euro zone country to need an international bailout prompted investors to sell the euro heavily last week, although European sources have said Germany and European Union officials are urgently exploring ways to support Spain's country's stricken banks. Many market players were already expecting euro gains to be limited. A Reuters poll suggested the euro was unlikely to recoup recent steep losses against the dollar in the next 12 months. The dollar managed to outperform the yen, which was hit broadly as risk appetite improved. The dollar was trading 0.5 percent higher at 79.62 yen after posting a session peak of 79.78, also the highest since May 23 using Reuters data. Link this Share this Digg this Email Reprints

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