Reuters: US Dollar Report: FOREX-Euro hits 7-week high vs dollar on Spain aid talks news

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FOREX-Euro hits 7-week high vs dollar on Spain aid talks news Aug 23rd 2012, 18:21 Thu Aug 23, 2012 2:21pm EDT * Spain in negotiations with euro zone for aid-sources * Merkel to urge Greece to stick to reforms * Expectations of ECB action, Fed easing seen boosting euro/dollar * Fed minutes prompt expectation of easing next month By Julie Haviv NEW YORK, Aug 23 (Reuters) - The euro soared to a seven-week high against the U.S. dollar on Thursday on a report that Spain is negotiating with the euro zone over conditions for international aid, although 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, sources with knowledge of the matter told Reuters on Thursday. The news added to risk sentiment that was already in play after the release of Federal Reserve minutes the previous day which hinted at more quantitative easing in the United States while surveys on French and German business activity were not as dour 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 last traded at $1.2562, up 0.3 percent on the day, after hitting a peak of $1.2589, its highest since July 4. Fed minutes on Wednesday showed the U.S. central bank may "fairly soon" opt for more stimulus, which investors expect to be a third round of quantitative easing, known as "QE3." The Fed has pledged to keep U.S. interest rates low through late 2014. The dollar pared some of its losses against 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 U.S. dollar last traded down 0.1 percent against the Japanese yen at 78.48 yen with the session peak of 78.69 yen and a 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. GREECE EYED German Chancellor Angela Merkel said she would urge Greece's prime minister to stick with tough reforms when they meet in Berlin on Friday while awaiting a report from the 'troika' of international lenders on Athens' progress. French President Francois Hollande, meanwhile, sent a stern message to Athens as he headed into talks with German Chancellor Angela Merkel on Thursday, saying Greece must do what is necessary to ensure it can remain in the euro zone. After the Berlin meeting, Greek Prime Minister Antonis Samaras will visit Paris on Saturday for talks with Hollande as part of a charm offensive aimed at securing leeway in implementing painful reforms in his country as a condition for the bailout. Analysts, however, 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 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, next week 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 any stimulus by the U.S. central bank to come in the form of a third round of Fed bond buying, others caution it may instead extend the period it plans to keep exceptionally low rates in place. Chicago Fed President Charles Evans told a news briefing in China that the Fed should do more to boost the U.S. 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. A separate report showed new U.S. single-family home sales rose in July but prices fell. Link this Share this Digg this Email Reprints

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