Reuters: US Dollar Report: FOREX-Euro, Aussie deflated by Fed; China data looms

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FOREX-Euro, Aussie deflated by Fed; China data looms Jun 7th 2012, 23:28 Thu Jun 7, 2012 7:28pm EDT * Euro, Aussie falls from highs * Fed chief offers nothing new on immediate monetary stimulus * China data on Saturday in focus as rate cut surprise wears off By Ian Chua SYDNEY, June 8 (Reuters) - The euro and commodity currencies nursed modest losses on Friday, having seen gains sparked by a surprise Chinese interest rate cut quickly evaporate after the U.S. central bank offered no hint of imminent monetary stimulus. The euro last stood at $1.2570, retreating from a two-week high of $1.2626, while the Australian dollar slid to $0.9902 from a peak of $1.0003. That saw the dollar bounce off a two-week low against a basket of major currencies. The dollar index was at 82.233, well off Thursday's trough of 81.911. The dramatic turnaround came after Federal Reserve Chairman Ben Bernanke struck a decidedly different tone from his deputy, who just hours before his congressional testimony, argued in favor of monetary support. Bernanke told Congress the Fed was closely monitoring "significant risks" to the U.S. recovery from Europe's debt crisis, disappointing those looking for him to lay out the groundwork for a third round of large-scale Fed bond buying. His comments also overshadowed a surprise move by China, which cut borrowing costs by 25 basis points and gave banks additional flexibility to set competitive lending and deposit rates to combat faltering growth. Traders, however, warned the rate cut could be a pre-emptive move to soothe markets ahead of the release of a batch of key Chinese data on Saturday, including inflation, retail sales and industrial production. "While the cut may imply that some of the data releases this weekend may fall well below market expectations, the decision and policymakers' proactive stance should be meaningful in boosting confidence, which may emanate beyond China to the rest of Asia," analysts at BNP Paris wrote in a note. "The performance of the Asian equity markets this morning will be key." Also weighing on sentiment somewhat, the Fed released a proposal that largely rejected pleas by the U.S. banking industry to soften parts of an international agreement on higher capital standards known as Basel III, traders said. Still, the fall in the euro and Australian dollar did not reflect a sudden increase in risk aversion. As a result the safe-haven yen continued to fall broadly. The U.S. dollar hit a two-week peak of 79.798 and was last at 79.660, while the euro stood at 100.13 yen, having risen as high as 100.63. While central bank events hogged the headlines in the past 24 hours, the euro zone debt crisis continued to simmer in the background with Spain's banking problems remaining the biggest headache. 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 only bright spot was that Madrid managed to raise more than 2 billion euros at a bond auction, albeit at a high price, soothing fears that it is being cut off from financial markets. In Asia on Friday, Japan's current account and revised first-quarter growth data are due this morning, followed by Australia's trade balance at 0130 GMT. But given worries about a hard economic landing in China, the focus will be on Beijing's data deluge on Saturday. A speech by the head of Australia's central bank at 0330 GMT will also be closely watched for any comments on China, Australia's single largest export market. Link this Share this Digg this Email Reprints

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