Reuters: US Dollar Report: FOREX-Euro rises as investors bet currency bloc to stay intact

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FOREX-Euro rises as investors bet currency bloc to stay intact Jun 4th 2012, 16:22 Mon Jun 4, 2012 12:22pm EDT * Euro rallies against the dollar, yen * G7 finance ministers, cenbank governors to hold call Tuesday NEW YORK, June 4 (Reuters) - The euro rallied against the dollar and the yen on Monday as investors bet European authorities can keep the euro zone intact, though concerns over Spain's ailing banking sector and global growth continued to cap gains. France and the European Commission signaled their support on Monday for an ambitious plan to use the euro zone's permanent bailout fund to rescue stricken banks, as European officials try to reassure investors they can contain an escalating crisis. Separately, finance ministers and central bank governors of the Group of Seven leading economies will hold a conference call on Tuesday morning to discuss the European debt crisis, but there will be no Group of 20 ministerial call, a spokeswoman for Canadian Finance Minister Jim Flaherty said on Monday. "Market sentiment picked up on Monday as European policymakers continued to float ideas on broadening the powers of the European Stability Mechanism, but the rebound in risk-taking behavior may be short-lived as the EU struggles to meet on common ground," said David Song, currency analyst at DailyFX in New York. The euro was trading 0.5 percent higher at $1.2494, up from the trough touched on Friday, which marked its lowest since July 2010. The Monday peak of $1.2509 was a four-day high. With London markets closed for a bank holiday, trade volume had been thin until New York markets opened. Against the yen, the euro traded up 0.8 percent at 97.75 yen, well above Friday's 11-1/2-year low of 95.57 yen, using Reuters data. Comments from European Central Bank policymaker Ewald Nowotny saying he supported the idea of a European banking union were the early push to break the euro out of the day's ranges. Wells Fargo said in a research note that "while the political discussion so far lacks specifics, increasingly the idea of a 'banking union' is being floated for consideration at the late June EU leaders meeting." Spanish Prime Minister Mariano Rajoy on Saturday called for the establishment of a central authority to oversee fiscal policy in the euro zone. Germany also wants a big leap forward in euro integration, though doubts remain whether such moves will restore near term confidence. More insight on potential monetary easing may come from Wednesday's European Central Bank meeting, with markets now positioning for an outside chance of a rate cut. Factory prices held steady in the euro zone in April, giving the ECB some room to cut rates. "The outlook of the euro will depend on how ready and willing the European Central Bank is to provide stimulus to the European economy," said Kathy Lien, director of currency research at GFT in Jersey City. "They (the ECB) have made it clear that they want the solution to come from Europe's leaders but the recent deterioration in economic data and slide in asset prices makes easier monetary policy inevitable." BERNANKE SPEAKS The euro's sell-off intensified last week after Spain's borrowing costs spiked on worries it may need to issue more bonds to bolster its ailing banks, putting more stress on markets already concerned that Greece may exit the euro zone. Spanish and Italian bond yields eased on Monday, but with no credible and long-lasting policy response expected, borrowing costs are likely to stay elevated. On Thursday, Federal Reserve Chairman Ben Bernanke testifies before a congressional committee about the U.S. economy and may offer more clues as to a possible policy stance. The weak U.S. labor market has raised expectations of more Fed quantitative easing by some analysts. "While expectations of more QE by the Fed may help the euro, with no quick decision about Spain in sight, the pressure on it will remain," said Beat Siegenthaler, currency analyst at UBS in Zurich. The dollar rose 0.3 percent to 78.25 yen, off Friday's trough of 77.65, its lowest since mid-February. The currency pair has recently been volatile on fears of yen-selling intervention by the Japanese authorities, a factor which will keep investors on edge. Expectations of more easing by the Bank of England also kept a lid on the British pound. Sterling was 0.1 percent higher at $1.5380, with some investors looking to sell into a bounce before a BoE policy decision on Thursday. Link this Share this Digg this Email Reprints

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