Reuters: US Dollar Report: FOREX-Euro jumps on ECB rate decision, Draghi; fears remain

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FOREX-Euro jumps on ECB rate decision, Draghi; fears remain Jun 6th 2012, 20:30 Wed Jun 6, 2012 4:30pm EDT * Euro up vs dollar after ECB decision, Draghi comments * ECB leaves growth outlook unchanged * Focus on Fed Bernanke testimony By Julie Haviv NEW YORK, June 6 (Reuters) - The euro jumped sharply against the dollar and yen in choppy trading on Wednesday after the European Central Bank left both interest rates and the outlook for economic growth unchanged. While investors in other markets would have welcomed further ECB action, a cut in rates or further monetary stimulus would have been negative for the euro, which also was ripe for a bounce given extended positioning against the currency. The ECB held its main interest rate at 1.0 percent on Wednesday, resisting international pressure to provide more support for the ailing euro zone economy. Investors also shrugged off comments from ECB President Mario Draghi, who put the onus on European political leaders to resolve the debt crisis. "Lack of negative news overnight and from Draghi prompted a short squeeze," said Michael Woolfolk, senior currency strategist at BNY Mellon. The euro was last up 1 percent against the dollar at $1.2574 after hitting a peak of $1.2581, the highest since May 28. That is well above a near two-year low of $1.2286 on Friday. To be sure, the euro's strength did little to diminish demand for puts, or bets on a euro decline, in the options market, according Matthew Schilling, a commodities broker at RJO Futures in Chicago. "There has been heavy volume all the way down to $1.1750 and even with this bounce and (ECB) rates staying unchanged there is not a lot of demand for calls." Investors who buy these puts expect the euro to fall below $1.1750 before they expire on July 6. "It doesn't look like anyone believes anything positive will come out of the euro zone," he said. Spanish banking sector problems and the possibility of Greece leaving the euro zone had some investors expecting the ECB to reassure investors by announcing fresh measures. Draghi, however, ruled out further long-term refinancing operations to boost liquidity, said Ron Simpson, director of FX research at Action Economics in Tampa, Florida, "and basically throws the onus back to politicians by saying it isn't right for monetary policy to fill 'other actors' lack of action.' "It appears no more Band-Aids are forthcoming from the central bank," he said. But Draghi did say the ECB decided to continue conducting its main refinancing operations at fixed-rate tender procedures with full allotment for as long as necessary. The ECB's decision comes a day after Group of Seven finance ministers took no immediate steps to soothe fears over Europe's debt problems but did discuss policy responses. Also on Wednesday, the president of the Atlanta Federal Reserve Bank, Dennis Lockhart, said the U.S. central bank may need to consider additional monetary easing. On Thursday U.S. Fed Chairman Ben Bernanke's testifies to Congress on the economy. Hints on the possibility of more quantitative easing are seen as key. Against the yen, the dollar was up 0.6 percent 79.24 . Against the yen, the euro rose 1.6 percent to 99.58 yen , well off Friday's trough, which was the lowest level since December 2000. Despite the euro's bounce, its prospects still look bleak. Germany and European Union officials are urgently exploring ways to rescue Spain's debt-stricken banks, although Madrid has not yet requested assistance and is resisting political conditions, EU sources said on Wednesday. There is also a risk that Greek elections on June 17 could lead to Greece leaving the euro. Link this Share this Digg this Email Reprints

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