Reuters: US Dollar Report: FOREX-Euro steady as investors await Fed and ECB decisions

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FOREX-Euro steady as investors await Fed and ECB decisions Aug 1st 2012, 13:12 Wed Aug 1, 2012 9:12am 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 NEW YORK, Aug 1 (Reuters) - The euro was little changed against the dollar on Wednesday as investors held off making large bets ahead of 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. Before then, a U.S. Federal Reserve policy decision is due on Wednesday. Analysts expect the Fed to stop short of announcing aggressive measures to tackle a weak economy but nevertheless to signal it is ready to act. The dollar got a boost against both the yen and the euro after data showed the U.S. private sector added more jobs than expected in July but the focus remained the central bank decisions.. "With the Fed meeting today, the ECB and BoE tomorrow, and the BoJ next week, market participants are gearing for policy action or at the very least accommodative rhetoric within the upcoming press conferences and policy statements," said Eric Theoret, currency strategist at Scotiabank in Toronto. The euro was flat at $1.2301, 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 comments from ECB President Mario Draghi last week, which raised expectations the ECB might resume its bond purchase program, lowering borrowing costs for Spain and Italy. 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. 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 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 business surveys on Wednesday showing the region's manufacturing sector contracted for an 11th successive month. FOMC AWAITED The dollar was up 0.1 percent against the yen at 78.20 yen after the U.S. private sector jobs report. "ADP has a poor correlation with nonfarm payrolls but that won't stop positive anticipation for Friday's job report based on today's better-than-expected number," said Joseph Trevisani, chief market strategist at Worldwide Markets, Woodcliff Lake in New Jersey. But the main highlight in U.S. trading 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 in London. He added that 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 yen of 77.91 yen, with traders saying it may have been influenced by month-end flows. The growth-linked Australian dollar shrugged off a weak Chinese official factory purchasing managers' index to rise to a four-month high against the U.S. dollar It was last at $1.0518, up 0.2 percent, with traders citing option barriers at $1.0550. Analysts said growth-linked currencies are likely to be supported by diversification flows from central banks. Link this Share this Digg this Email Reprints

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