Reuters: US Dollar Report: FOREX-Dollar holds gains after Fed; all riding on ECB

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FOREX-Dollar holds gains after Fed; all riding on ECB Aug 1st 2012, 23:38 Wed Aug 1, 2012 7:38pm EDT * Dollar perkier after Fed stops short of more stimulus * ECB next major event risk * AUD has retail sales to contend with first By Ian Chua SYDNEY, Aug 2 (Reuters) - The U.S. dollar started Asian trading on the front foot Thursday having hit a one-week high after the Federal Reserve refrained from offering new stimulus, leaving the European Central Bank to carry the burden of the market's hopes. The dollar index was at 83.054, after peaking at 83.159, its highest since July 26. The euro fell more than a full cent from Wednesday's high of $1.2337 to a low around $1.2218. It last stood at $1.2240, with immediate support seen around $1.2215, the 50 percent retracement of its July 24-27 rally. The greenback gained broadly even as the Fed kept the door ajar for further bond-buying to help spur a sluggish economic recovery, a move that would cement the dollar's status as a funding currency of choice for carry trades. "In our view, the bar is now very low for additional easing, and the data would need to immediately show a sustained improvement for the Fed not to act at the September meeting," analysts at BNP Paribas said. Fed Chairman Ben Bernanke will probably lay the foundation for the next steps at the Jackson Hole meeting on August 31, they added. While not totally unexpected, the lack of action from the Fed puts the spotlight on the ECB, which holds its policy meeting later on Thursday. Markets are anxiously waiting to see if ECB President Mario Draghi will back up his vow to do whatever it takes to protect the euro with serious action. A Munich-based daily said Draghi is planning concerted action using both the ECB and the future euro European Stability Mechanism (ESM) to purchase sovereign debt from Spain or Italy in order to help push down borrowing rates for those two countries. Analysts at Barclays Capital, however, expect the ECB will disappoint markets. "The most likely outcome is that the ECB will not announce any significant policy change," analyst Guillermo Felices wrote in a client note. "Rather, we think it likely that President Draghi's statement will signal that they are ready to act, using a range of tools at their disposal, if conditions deemed it necessary," Felices said, adding concrete measures are more likely at the September meeting. If the ECB does act boldly, it could revive risk appetite, giving high-beta currencies like the Australian dollar a new lease on life. The Aussie fell nearly a full cent on Wednesday against a resurgent greenback, plumbing a low around $1.0450 . It last traded at $1.0471, with immediate support seen at the overnight low, a level corresponding to the 23.6 percent retracement of its latest rally. The Aussie's immediate fortunes, though, hinge on retail sales data at 0130 GMT. Forecasts centre on a healthy 0.7 percent increase from the previous month and a rise of 0.8 percent in the second quarter. A strong result would likely lead markets to scale back expectations for further rate cuts, and support the Aussie. Link this Share this Digg this Email Reprints

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