Reuters: US Dollar Report: FOREX-Euro steady, hangs on Fed, ECB decisions

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FOREX-Euro steady, hangs on Fed, ECB decisions Aug 1st 2012, 11:28 Wed Aug 1, 2012 7:28am EDT * Focus on whether ECB acts after Draghi's pledge * Investors see risk of disappointment * Aussie hits four-month high versus U.S. dollar * Fed seen in wait-and-see mode By Jessica Mortimer LONDON, Aug 1 (Reuters) - The euro held steady against the dollar on Wednesday, with the currencies' near-term direction tied closely to impending monetary policy decisions in the United States and the euro zone. Investors are gearing up for possible European Central Bank action on Thursday to tackle the region's debt crisis, but they are also mindful of the risk of disappointment. Bank President Mario Draghi last week boosted the euro and riskier assets by pledging to do everything necessary to preserve the euro. Analysts said this made many wary of taking a strong position and was likely to keep the euro trapped in a tight range against the dollar. Before then, a U.S. Federal Reserve policy decision is due at 1815 GMT on Wednesday. Analysts expect the Fed will stop short of announcing aggressive measures to tackle a weak economy but nevertheless to signal it is ready to act. The euro was flat at $1.2315, coming under some pressure after German Bundesbank President Jens Weidmann said governments overestimated the ECB's capacities and placed too many demands on it. The single currency was supported above Monday's low of $1.2225 but remained below a three-week peak of $1.2390 struck after Draghi's comments last week, which raised expectations the ECB might resume its bond purchase programme, lowering borrowing costs for Spain and Italy. "If the ECB come up with something very clear-cut we could see a position squeeze (higher) in the euro, depending on how much detail Draghi gives at the press conference," said Ankita Dudani, currency strategist at RBS. She added that the risk of a positive outcome from the ECB or a disappointment were about 50/50, which was likely to keep trade in euro/dollar quite muted. Investors were wary of stiff German opposition to either a resumption of ECB bond-buying or granting a banking license to the euro zone's rescue fund to increase its firepower. Many analysts and traders say the impact of any ECB's action would in any case be temporary without a sustainable economic recovery in battered southern Europe. Weak economic growth and record high joblessness across the euro zone is likely to keep alive chances of more interest rate cuts by the ECB in the near term, keeping sentiment towards the euro bearish. Euro zone data painted a gloomy picture for the region, with a business surveys on Wednesday showing the region's manufacturing sector contracted for an 11th successive month. FOMC AWAITED Support for the euro from Middle-East investors capped the dollar index, which was down 0.1 percent at 82.572, hovering above a near four-week low of 82.343 hit last week. Across the Atlantic, traders will keep an eye on the ADP employment report for July, but the main highlight will be the Fed's statement where it is likely to mark down expectations for growth but hold back from further easing. "We think if the Fed indicates a wait-and-see approach it could lead to some disappointment and would weigh on the euro/dollar," said Adam Myers, senior currency strategist at Credit Agricole. He added even if the Fed surprised and announced fresh measures, likely disappointment from the ECB on Thursday would cap any gains in the euro. Earlier, the dollar hit a two-month low against the Japanese yen of 77.90 yen on the EBS trading platform, with traders saying it may have been influenced by month-end flows. It was last trading at 78.15 yen. The growth-linked Australian dollar shrugged off weak Chinese official factory purchasing managers' index to rise to a four-month high against the U.S. dollar of $1.0543, with traders citing option barriers at $1.0550. Analysts said growth-linked currencies are likely to be supported by diversification flows from central banks. Reflecting that, the Swedish crown hit a 12-year high against the euro of 8.2985. Link this Share this Digg this Email Reprints

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