Reuters: US Dollar Report: FOREX-Euro hits 8-week high versus dollar; eyes on Bernanke

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FOREX-Euro hits 8-week high versus dollar; eyes on Bernanke Aug 31st 2012, 11:34 Fri Aug 31, 2012 7:34am EDT * Market awaits Fed chair's speech at 1400 GMT * Any signal of imminent Fed easing would weigh on dollar * ECB's Coeure says bond buying must have strict conditions By Jessica Mortimer LONDON, Aug 31 (Reuters) - The euro rose to an eight-week high against the dollar on Friday before a speech by Federal Reserve Chairman Ben Bernanke which would push the U.S. currency lower if he signals more monetary easing may be imminent. Following comments by European Central Bank executive board member Benoit Coeure, the euro also benefited from anticipation that the bank will announce clear steps to tackle the euro zone debt crisis at its policy meeting next week. It rose 0.7 percent on the day to hit $1.2595, its strongest since early July, with traders noting buyers from the Middle East. It stopped just shy of a reported options barrier at $1.2600 and last traded at $1.2579. Expectations Bernanke will signal another imminent round of asset buying, or quantitative easing, have ebbed recently following better U.S. economic data, allowing the dollar to recover. But some analysts said this has merely provided better levels to sell. "Expectations have been pared back from one week ago and the risk/reward is shifting back towards a potential positive surprise," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets. She said the euro may fall if Bernanke refrains from signalling more QE, but this would be an opportunity to buy the currency, which she believes has the potential to break higher towards $1.2762. Fed money printing usually cheapens the dollar as it increases the supply. Bernanke speaks at 1400 GMT at a meeting of central bankers in Jackson Hole, Wyoming. Meanwhile, Coeure's also lifted the euro. He strengthened market expectations the ECB will buy Spanish and Italian government bonds to reduce their high borrowing costs when he told a conference that ECB bond purchases must be subject to strict conditions. The dollar index, which measures the dollar's value against a basket of currencies, was down 0.5 percent at 81.316, nearing a two-month low of 81.221. "The market is being more realistic about what to expect. There's recognition Bernanke cannot pre-commit to easing at the September meeting, so we're likely to get a laundry list of what he could do if necessary," HSBC FX strategist Daragh Maher said. "Euro/dollar will be constrained by (ECB President Mario) Draghi next week so you need to look at pairs like Aussie/dollar and dollar/Norwegian crown to see what the appetite for the dollar is." CLOSE CALL Atlanta Fed President Dennis Lockhart, seen as a centrist voter on U.S. monetary policy, said on Thursday it would be a "close call" when central bank policymakers meet next month to decide whether to ease policy more. U.S. consumer spending rose by the most in five months in July, while the number of Americans filing new claims for jobless benefits held steady last week. Although Bernanke's speech was in focus, next week's ECB meeting was expected to have a bigger impact on the euro. A report in a German newspaper on Friday that Bundesbank chief Jens Weidmann opposed the plan and had considered resigning several times highlighted hurdles still to be overcome. But the report had little impact on the euro given market perception that, with the support of other German policymakers such as German Chancellor Angela Merkel and ECB board member Joerg Asmussen, the plan can be pushed through. Link this Share this Digg this Email Reprints

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