Reuters: US Dollar Report: FOREX-Euro slips from seven-week high after solid week

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FOREX-Euro slips from seven-week high after solid week Aug 24th 2012, 16:06 Fri Aug 24, 2012 12:06pm EDT * Euro retreats from Thursday's seven-week high vs. dollar * Market seizes on talk of temporary Greek exit * Investors then focus on news ECB to set yield-band targets * Euro-zone policymakers seen making slow progress NEW YORK, Aug 24 (Reuters) - The euro fell against the dollar in a volatile session on Friday after Thursday's rally to a seven-week high as investors debated the currency's outlook and how close policymakers are in coming up with a plan to tackle the European debt crisis. The euro fell to a fresh session low against the dollar on Friday after Market News International reported senior euro-zone officials as saying the German Finance Ministry is seriously considering a plan in which Greece would be obliged to ask for a temporary exit from the euro zone until it sorts out its public finances.. The single currency then pared those losses after central bank sources told Reuters the European Central Bank is considering setting yield band targets under a new bond-buying program to let it keep its strategy shielded and avoid speculators trying to cash in. [ID:nL6E8JOD1H}. "Foreign exchange has turned this week to more political than economic developments because of what appears to be very strong undercurrents on both sides of the Atlantic regarding a Greek exit," said Michael Woolfolk, an FX strategist with BNY Mellon in New York. "It is not moot. It is actively being discussed." This week, the euro has rallied strongly on speculation that the ECB will unveil plans to help lower Spanish and Italian bond yields at its next policy meeting on Sept. 6. The euro was last trading at $1.2543, down 0.2 percent and below Thursday's peak of $1.2589, its highest since early July. Despite Friday's losses, it has gained 1.7 percent this week, its best weekly performance on a percentage basis since Feb. 26 at current prices. The euro was already pressured as the New York session opened after German Chancellor Angela Merkel said after meeting Greek Prime Minister Antonis Samaras in Berlin that Germany would not judge his country's performance on its reform targets prematurely, but would await a report by the "troika" of international lenders due next month. Samaras said his country does not want more money from its euro-zone partners, just time to breathe so that it can return to growth. Investors had already expected little discussion of flexibility on Greek austerity measures before September. The market then seized on each new headline. "The critical thing is to control interest-rate costs for Italy and Spain," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York after news of the yield-band targets. "A band, I think, does two things: It allows them flexibility not to commit to a specific level, and it allows them to achieve policy goals with a minimum of capital expenditure. And it should spook speculators." SPANISH DENIAL On Thursday, the euro rose to a seven-week high after sources told Reuters that Spain is in talks with euro-zone partners over conditions for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout. While it implied no rapid progress in resolving Spain's debt problems, it was seen as positive since it could open the door for the European Central Bank to intervene in the bond market. But Soraya Saenz de Santamaria, Spain's deputy prime minister, on Friday denied the country was in talks with the euro zone over financial assistance to lower its borrowing costs. Some consolidation in the euro was expected after this week's move. "After three particularly good days, it would not surprise me today if we have a bit of a pullback to get better levels to buy in," said Daragh Maher, currency strategist at HSBC in London. "The market still seems to be a bit more optimistic - or at least a bit less pessimistic - on the euro, and we've been getting a slow but relentless closing of shorts." Maher said with little obvious near-term technical resistance, the euro could extend its short squeeze higher to $1.27 before the next ECB meeting, as investors who earlier bet against the single currency closed their positions. After the ECB meeting on Sept.6, there are Dutch elections and a German Constitutional Court ruling on the euro-zone rescue fund on Sept. 12 and an EU finance ministers' meeting starting on Sept. 14. The dollar was up 0.2 percent at 78.65 yen. Link this Share this Digg this Email Reprints

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