Reuters: US Dollar Report: FOREX-Euro rises on Greek news; dollar down ahead of Fed

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FOREX-Euro rises on Greek news; dollar down ahead of Fed Jun 19th 2012, 16:30 Tue Jun 19, 2012 12:30pm EDT * Growing optimism that Greece can renegotiate bailout terms * Fed expected to opt for more stimulus * Australian dollar rises to 6-week high vs dollar By Gertrude Chavez-Dreyfuss NEW YORK, June 19 (Reuters) - The euro rebounded against the dollar on Tuesday on optimism that Greece will renegotiate its bailout package with its international lenders and news that Greece was making progress in forming a coalition government after Sunday's election. The euro was also supported by expectations the Federal Reserve, which begins a two-day meeting on Tuesday, may ease monetary policy further after a series of disappointing U.S. economic data. Analysts expect the Fed to extend its long-term bond-buying through Operation Twist by a few months from the current deadline of June. "We're beginning to see more positive EU headlines, which are giving reason for investors to cover their short positions," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut. A European Union official said international lenders are open to renegotiating the terms of Greece's bailout deal because circumstances have changed. "Because the economic situation has changed, the situation of tax receipts has changed, the rhythm of implementation of the milestones has changed, the rhythm of privatisation has changed, if we were not to change the MoU (memorandum of understanding), it does not work," a euro zone official said.. Greece's progress in creating a coalition government also underpinned the euro. The euro was last up 0.9 percent at $1.2689 after hitting session highs above $1.27, on a day when Middle Eastern demand was a consistent theme. Support is seen around $1.2536, the trendline drawn below daily lows from June 1, and the 21-day moving average at $1.2530. Strategists said the euro, however, would struggle to rally beyond the one-month high of $1.2748 posted on Monday after a win for pro-bailout parties in the Greek election, given the dire economic outlook and worries about Spain's banking system. News that a second, more detailed audit of Spanish banks would be delayed until September fuelled more bearishness toward Spain, the euro zone's fourth-largest economy, whose 10-year borrowing costs have ballooned above 7 percent. Spain's Treasury sold 12- and 18-month debt on Tuesday at yields of over 5 percent, compared with just under 3 percent at the last auction for the same maturities in May. It is to sell between 1 billion and 2 billion euros of bonds on Thursday. "We believe sustained high yields will eventually force Spain into taking a full-fledged bailout," wrote Brown Brothers Harriman in a note, adding that the delay in the results of Spain's banking sector audit would not sit well with investors. "The market simply does not have this kind of patience." Investors were also unnerved after a German court said the government had not consulted parliament sufficiently about the configuration of Europe's permanent bailout scheme. The euro briefly fell earlier after Germany's ZEW survey showed economic sentiment in June posted its biggest monthly drop since 1998, a sign that even the bloc's strongest economy was not immune from the crisis. FED EASING EYED The Fed will announce its policy decision on Wednesday afternoon, and some market players have speculated it could opt for a third round of quantitative easing as Europe's troubles pose a risk to growth in the United States, the world's largest economy. "There is positioning ahead of the Fed, with the dollar unable to capitalize on euro-negative sentiment ahead of the Fed," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "The risk is relatively high that officials will signal the need for more stimulus." Another round of monetary stimulus would weigh on the U.S. dollar and boost growth-linked currencies like the Australian dollar. The dollar index, which measures the greenback against a basket of major currencies, was down 0.7 percent at 81.345, having struck a one-month low of 81.266 on Monday. The dollar edged lower against the yen, easing 0.3 percent to 78.91 yen. A drop below 78.61 yen would take it to its lowest level in two weeks. Interest rate differentials moved against the dollar on expectations of more Fed easing. The Australian dollar jump to a six-week high of US$1.0147. Meanwhile, against the backdrop of slowing growth, the Group of 20, the world's major economies, is set to urge Europe to take "all necessary policy measures" to resolve its woes and U.S. President Barack Obama requested a meeting with its leaders. Link this Share this Digg this Email Reprints

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