Reuters: US Dollar Report: FOREX-Euro, riskier currencies rise on China rate cut

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FOREX-Euro, riskier currencies rise on China rate cut Jun 7th 2012, 11:52 Thu Jun 7, 2012 7:52am EDT * Surprise China rate cut boosts riskier currencies * Rising talk of more stimulus from Fed helps risk * Decent demand at Spain bond auction supports euro By Nia Williams LONDON, June 7 (Reuters) - The euro hit a 10-day high against the dollar and growth-linked currencies rallied on Thursday after China's central bank cut benchmark deposit and lending rates in a surprise move aimed at supporting growth in the world's second-largest economy. 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 euro rose sharply to a session high of $1.2601, its highest level since May 28, before paring gains to last trade up 0.1 percent at $1.2579. Traders cited offers at $1.2600 and resistance around $1.2625, the high struck last week. The Australian dollar climbed to a fresh three-week high of US$0.9993 while commodity currencies including the New Zealand and Canadian dollars <CAD=D4 also rose. "This is very positive for risk appetite and is indicative the PBOC (People's Bank of China) are there to support the Chinese economy. If anything I am surprised the moves so far look quite muted," said Michael Sneyd, currency strategist at BNP Paribas. "We would expect to see more investors put on risk positions and see a trend higher in the Australian and Canadian dollars, while the euro should also continue to benefit." 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 also supported perceived riskier currencies, driving investors to unwind heavy bets on safe-haven currencies like the dollar and the Japanese yen. Both looked likely to 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 will give a clearer sense of whether the central bank's policy panel will taken any new steps. More easing by the Fed would likely weigh on the dollar while giving a boost to growth-linked currencies. The dollar was down 0.3 percent against a basket of currencies at 82.083. 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. "There is also profit taking in long dollar positions. We expect Bernanke to strike a dovish tone and that will keep alive expectations of more quantitative easing." 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 0.2 percent higher at 79.38 yen, off a 3-1/2 month trough around 77.65 set on June 1. Link this Share this Digg this Email Reprints

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