Reuters: US Dollar Report: FOREX-Euro and aussie rise on China rate cut

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FOREX-Euro and aussie rise on China rate cut Jun 7th 2012, 13:03 Thu Jun 7, 2012 9:03am EDT * Surprise China rate cut boosts riskier currencies * Talk of more stimulus from Fed * Decent demand at Spain bond auction supports euro NEW YORK, June 7 (Reuters) - The euro rose to its highest since late May against the dollar and growth-linked currencies, including the Australian dollar, rallied on Thursday after China's central bank cut benchmark rates to support growth in the world's second-largest economy. China delivered twin surprises on interest rates, cutting borrowing costs to combat faltering growth while giving banks additional flexibility to set competitive lending and deposit rates. [ID:nL3E8H76KL}. Decent demand at a Spanish bond auction and expectations that U.S. and European policymakers may take further steps to support the global economy added to demand for perceived riskier currencies. The dollar rose to its highest since May 25 against the yen after a report showed the number of Americans lining up for new jobless benefits fell last week for the first time since April, a reminder that the wounded labor market is still slowly healing. "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." The euro rose to a session high of $1.2606, using Reuters data, its highest level since May 28, before paring gains to last trade up 0.1 percent at $1.2589. Traders cited offers at $1.2600 and resistance around $1.2625. The Australian dollar climbed to a fresh three-week high, while commodity currencies including the New Zealand and Canadian dollars also rose. The global economy has floundered in recent weeks and 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. Expectations of more easing from the Federal Reserve may also be weakening the dollar, and the greenback should stay under pressure ahead of Fed chairman Ben Bernanke's testimony before Congress later in the day, traders said. Hopes for more stimulus received a boost after Janet Yellen, the Fed's vice chair, laid out the case for more easing to bolster a fragile economy as financial turmoil in Europe mounts. Other Fed officials have also talked about the need for possible action after data last week showed a sharp slowdown in U.S. employment growth, but Bernanke is key on whether the central bank's policy panel will taken any new steps. SOLID SPAIN DEMAND The euro gained support after Spain sold more than 2 billion euros of government debt in an auction that soothed concerns the country could be shut out of credit markets, although borrowing costs rose on worries about its banking sector and fiscal problems. Speculation that Spain could become the fourth euro zone sovereign 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 the country's stricken banks. Many market players said they expected euro gains to be limited, despite the broadly weaker dollar. A Reuters poll of market players suggested the euro was unlikely to recoup recent steep losses against the dollar in the next 12 months. "The euro can bounce up to $1.2630 but then it will be a sell on rallies as Europe's problems are ... considerable," said Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners in London. The dollar managed to outperform the yen which was hit broadly as risk appetite improved and also dampened by recent threats from Japanese authorities to curb its strength. The dollar was 0.5 percent higher at 79.61 yen after posting a session peak of 79.71, using Reuters data, well off a 3-1/2 month trough set on June 1. "The number was very close to expectations," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York. "We've had a deterioration in the last few months and now it looks like claims are plateauing." Link this Share this Digg this Email Reprints

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