Reuters: US Dollar Report: FOREX-Euro climbs on reports of ECB plans for bond purchases

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FOREX-Euro climbs on reports of ECB plans for bond purchases Sep 5th 2012, 16:04 Tweet Share this Email Print Wed Sep 5, 2012 12:04pm EDT * Euro rallies on reports of ECB plans for bond purchases * Euro zone data gloomy * Aussie skids to eight-week low NEW YORK, Sept 5 (Reuters) - The euro reversed earlier losses and rose sharply on Wednesday amid reports that the European Central Bank will announce a new government bond buying program to stem the euro zone crisis. Further details of the plan will be revealed by ECB President Mario Draghi after Thursday's policy meeting. The ECB said in August it would start buying Spanish and Italian government bonds again to ease pressure on those countries' borrowing costs but only if they first sought help from the euro zone's rescue fund and met strict conditions. The move in the euro began as the New York session opened when Bloomberg reported that Draghi's plan would involve unlimited buying of government bonds. The ECB had been expected to be cautious about disclosing the size of its bond buying, given opposition from Germany's central bank. Two sources told Reuters the ECB would aim to sterilize new purchases of government bonds but one of the sources added that such a step was an option rather than a must. "The market is setting itself up for a fall," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. "They are likely to announce unlimited bond buying which sounds good, but there will conditionality attached which will keep the euro zone members from signing up to it." The euro was last up 0.3 percent at $1.2604, heading back to the two-month high of $1.2636 touched on Friday. Volume was said by traders and analysts to be light which may be exacerbating price swings. Some investors were already betting the ECB would announce details on Thursday, when it holds a policy meeting, of a bond-buying program to lower Spanish and Italian borrowing costs ahead of the news but the majority of investors were skeptical. But until the leak of the ECB's plans they were being outweighed by pessimism that any announcement would fall short of market expectations. And while the euro was higher, some cautioned that the volatility was far from over. The euro has risen from a two-year low of $1.2040 in late July since ECB chief Mario Draghi pledged he would do everything to preserve the currency, suggesting possible intervention in bond markets to lower peripheral countries' borrowing costs. He told European lawmakers on Monday that purchases of short-term sovereign bonds to help debt-burdened countries would not breach European Union rules, according to a recording obtained by Reuters. WEDNESDAY DATA Data on Wednesday confirmed French and German services sectors contracted in August, showing the economic rot was spreading well beyond the periphery and raising the chances of the ECB cutting interest rates in coming months. Credit Agricole was forecasting a 25-basis-point cut in the refinancing rate on Thursday, which FX strategist Stephen Gallo in London said could knock the common currency briefly lower. "A cut would take some people by surprise and we could see weakness in the euro. But some might believe that is indicative of a very euro-positive outcome from Draghi's press conference and would not want to be short going into that," he said. Beyond the ECB meeting, investors are looking to U.S. non-farm payrolls data on Friday. A weaker-than-expected number could bolster expectations of more quantitative easing by the Federal Reserve, perhaps later this month. The dollar was steady at 78.38 Japanese yen. The Australian dollar hit an eight-week low against the U.S. dollar on speculation the Reserve Bank of Australia will cut interest rates to cushion the economy from falling commodity prices. The euro rose to its highest against the Swiss franc since May 24. It was last at 1.2030 francs. Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above.

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