Reuters: US Dollar Report: FOREX-Euro climbs to 7-week high vs dollar on Spain negotiations

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FOREX-Euro climbs to 7-week high vs dollar on Spain negotiations Aug 23rd 2012, 15:42 Thu Aug 23, 2012 11:42am EDT * Spain in negotiations with euro zone for aid--sources * Expectations of ECB action, Fed easing seen boosting euro/dollar * Fed minutes prompt expectation of easing next month NEW YORK, Aug 23 (Reuters) - The euro climbed to a seven-week high against the U.S. dollar on Thursday after sources said Spain is negotiating with the euro zone over conditions for international aid, though the country has not made a final decision to request a bailout. In the talks aimed at bringing down Spain's borrowing costs, the favored option is that the existing European rescue fund, the EFSF, would purchase Spanish government bonds at primary auctions while the European Central Bank would intervene in the secondary market to lower yields, three sources with knowledge of the matter told Reuters on Thursday.. The news added to risk sentiment, which was already bolstered by Federal Reserve minutes released on Wednesday. The minutes hinted at more monetary easing in the United States while surveys on French and German business activity were not as bad as feared. "We got the pop (in the euro) because we are getting some clarity on this whole bailout package for Spain," said David Song, currency analyst at DailyFX in New York. "Suggestions of a more accelerated approach or common ground is what's helping the euro right now." The euro was last up 0.5 percent on the day at $1.2582 after climbing as high as $1.2586, its highest since July 4. The euro has been strong after the Fed minutes on Wednesday showed the U.S. central bank may opt for more stimulus, which investors expect to be a third round of quantitative easing, "fairly soon." The dollar did pare some of its losses againt the euro after St. Louis Federal Reserve President James Bullard told CNBC television that data since the last policymakers' meeting on July 31-Aug. 1 had been somewhat better and that the minutes were "a bit stale".. The dollar rose to a session high against the yen as Bullard spoke though it surrendered those gains and failed to keep any momentum against the euro as the New York session progressed. The U.S. dollar fell 0.2 percent againt the yen to 78.39 yen with the session peak of 78.69 yen and the session low at 78.34. The dollar suffered its biggest one-day loss in nearly two months against the yen on Wednesday after the Fed minutes. . Bullard's "comments were in line with the view that QE3 is not a foregone conclusion," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C. "I'm not pricing in QE3 as a done deal in September and in that case, the dollar selloff is over done." FURTHER GAINS Analysts saw scope for further gains for the euro in the near term due to expectations the European Central Bank will act to lower Spanish and Italian bond yields next month. "There is a lot of momentum, people are still short of the euro and you have both sides of the equation, the Europe side and the U.S. side, coming together," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets in London. "Another round of Fed QE (quantitative easing) was something many people were talking about but not many were believing. If you look at previous times the Fed has done QE it is undeniably bearish for the dollar." Childe-Freeman said if Federal Reserve Chairman Ben Bernanke confirms more QE is possible when he speaks at a conference in Jackson Hole, Wyoming, later this month and if there are no "nasty negative shocks" from Europe, the euro could rise to $1.2760 (the 50 percent retracement of the March to July selloff) next month. But while some market players expect the Fed's likely easing to come in the form of a third round of bond buying, known as "QE3," others caution it may extend the period it plans to keep exceptionally low rates in place instead. The Fed has pledged to keep low rates through late 2014. Chicago Fed President Charles Evans told a news briefing in China on Thursday that the Federal Reserve should do more to boost the United States economy as the most recent uptick in employment data is still not good enough.. The number of Americans filing new claims for jobless benefits unexpectedly rose last week, suggesting the labor market is healing too slowly to make much of a dent in the unemployment rate, a report showed as the New York session opened.. A separate report showed new U.S. single-family home sales rose in July but prices fell, giving mixed signals about the strength of the country's budding housing market recovery. . This week, a series of high profile meetings may help frame the next phase of ECB policymakers' response to the debt crisis. German Chancellor Angela Merkel and French President Francois Hollande meet later on Thursday to fine-tune their message to Greek Prime Minister Antonis Samaras. Merkel said on Wednesday no decisions would be taken during her talks with Samaras on Friday and that she would wait for the lenders' report on Greek progress in meeting targets, which is not expected until at least late September. Link this Share this Digg this Email Reprints

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