Reuters: US Dollar Report: FOREX-Dollar dips against euro as Fed decision looms

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FOREX-Dollar dips against euro as Fed decision looms Jun 20th 2012, 16:12 Wed Jun 20, 2012 12:12pm EDT * Euro supported by Fed easing speculation * Greece seen closer to agreeing coalition government * Euro resistance at $1.2748, post-election high By Gertrude Chavez-Dreyfuss NEW YORK, June 20 (Reuters) - The dollar fell for a second straight session against the euro on Wednesday on speculation the Federal Reserve will adopt further monetary stimulus to boost the world's largest economy, although any decision by the central bank to stand pat could spur a reversal. The euro also gained support from signs Greek parties may be close to forming a coalition government and expectations that euro zone policymakers could take quick steps to lower borrowing costs for Spain and Italy. Strategists said the Fed's policy decision due later on Wednesday, seen as likely to focus on action to lower long-term interest rates on U.S. Treasuries, would take center stage. In general, lower interest rates make a country's currency less attractive. "The focus right now has been on the U.S. central bank and the possibility that it may further stimulate the economy, so that has helped put worries about Europe off to the side," said Joe Manimbo, market analyst at Western Union Business Solutions in Washington. Fed officials will announce their policy decision at 12:30 p.m. (1630 GMT). They are due to release their economic projections at 2 p.m. (1800 GMT). Fed chairman Ben Bernanke will follow with a news conference at 2:15 p.m. (1815 GMT). In midday New York trading, the euro was up 0.1 percent at $1.2706, not far from a one-month high of $1.2748 hit on Monday after a narrow win for pro-bailout parties in the Greek election. It held much of the gains made against the dollar on Tuesday. The euro was also supported by generally positive news out of Greece. The leader of the winning New Democracy party Antonis Samaras has been installed as prime minister of Greece and said he can form a coalition government. Constantine Ponticos, managing director and head of research at asset management firm Pareto Partners, however, said even if the government forms a broad coalition, unrest and strikes are still likely in Greece because the "hard work needs to be done." He added that if reforms stall and do not yield results, the radical left party Syriza will be back "and will get even stronger." Signs the euro zone debt crisis is intensifying -- through weakening German economic indicators and elevated Spanish bond yields -- have prompted some players to bet central banks will step in with measures to safeguard global growth. Many investors doubt the Fed will go so far as to launch another round of quantitative easing, a policy that entails the expansion of its balance sheet via bond purchases. A more likely scenario is for the Fed to extend "Operation Twist", a program aimed at pushing down long-term borrowing costs by selling short-term securities to buy longer-term ones. The scheme is now due to end in June. Greg Moore, currency strategist, at TD Securities in Toronto said "Operation Twist" seems to be the "path of least resistance, the least market-disturbing, and...we do not think financial conditions have reached the threshold for full-on QE3 yet." He added, however, that there are still some out there calling for the Fed to expand its balance sheet and if the range of expectations is between "Operation Twist" and full-on QE3, then anything less than outright asset purchases might disappoint the market. The dollar was little changed against a basket of currencies at 81.408, not far from a one-month low of 81.186 hit on Tuesday. PERIPHERAL DEBT PRESSURED The greenback's overall weakness saw sterling trade near a one-month high at $1.5778, despite minutes from the latest meeting of the rate-setting committee of the Bank of England showing policymakers are on the verge of another round of monetary easing in the UK. The pound was last at $1.5751, up 0.2 percent on the day. With Spain's 10-year government bond yields having hit euro-era highs this week, fanning speculation Madrid may need a full-blown bailout, market players expected the euro's gains to be limited. Given the level of Spanish long-term yields, Italy put forward a proposal at a G20 summit on Tuesday for the euro zone's rescue funds to start buying the debt of distressed European countries. The proposal is expected to be discussed at a meeting of European leaders on Friday but it would require a huge shift in Germany's stance for it to gather credence. The euro could see a bounce if the proposal is implemented although a sustained rise is unlikely, traders said. The euro was up 0.9 percent against the safe-haven yen , to 101.04 yen, while the dollar rose 0.8 percent against the Japanese currency to 79.53 yen. Link this Share this Digg this Email Reprints

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