Reuters: US Dollar Report: FOREX-Euro gains on bailout fund optimism; dollar broadly weaker

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FOREX-Euro gains on bailout fund optimism; dollar broadly weaker Sep 11th 2012, 13:58 Tue Sep 11, 2012 9:58am EDT * German court expected to back euro zone bailout fund * Speculation of Fed easing weighs broadly on dollar * Moody's warning on US debt hurts dollar * Euro at 4-month high, Canadian dollar at 1-year peak By Gertrude Chavez-Dreyfuss NEW YORK, Sept 11 (Reuters) - The euro climbed to a four-month peak against the dollar on Tuesday on increased expectations a German court will back the euro zone bailout fund, while the greenback fell broadly on speculation the Federal Reserve will ease monetary policy further. Gains were seen likely to be capped by the outside risk Germany's constitutional court could still surprise investors by rejecting the European Stability Mechanism, Europe's new bailout fund, in a ruling on Wednesday.. Such a decision would threaten European Central Bank plans to lower the borrowing costs of Spain and Italy under a program announced late last week which had given the euro a lift. In trading on Tuesday, the euro hit $1.2836, its highest since May 15. It blew past its 200-day moving average around $1.2834. It was last trading at $1.2825, up 0.5 percent higher on the day, having rallied more than 6 percent from its two-year low of $1.2042 struck in late July. Helping the euro advance was German court saying that it would not postpone Wednesday's long-awaited decision despite a new challenge by a eurosceptic lawmaker. "That just removes the uncertainty about the bailout fund which is euro-positive and the consensus now is that the German court will back the fund without incident," said Brian Kim, currency strategist, at RBS Securities in Stamford, Connecticut. The Netherlands holds an election on Wednesday and a two-day U.S. Federal Reserve meeting ends on Thursday. Analysts said sentiment toward the euro was broadly positive but the currency was vulnerable to developments in Spain, which is expected to ask for a bailout, and in Greece, whose foreign lenders rejected parts of a government austerity package. "Spain and Italy are huge problems that are far from solved, and if the worst comes and the (bailout funds) are tapped and the ECB starts purchasing 'unlimited' quantities, well then the euro will devalue, similar to the dollar when the Fed initially started its quantitative easing program," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. WEAK DOLLAR Pressure on the U.S. dollar has increased. Weak U.S jobs data last week raised expectations the Fed will launch another asset purchase program. That would weigh on the dollar against higher-yielding currencies. In a Reuters poll taken after Friday's payrolls report, economists saw a 60 percent chance of the Fed embarking on QE3 this week compared with 45 percent in a late August poll. The dollar also sold off across the board after Moody's Investors Service said the United States could lose its triple-A debt rating if next year's budget talks do not result in a lower debt to GDP ratio. The greenback fell to 77.82 yen, its lowest in more than three months. It was last at 77.79, down 0.6 percent. Analysts said the Japanese authorities were likely to step up threats to intervene in the currency market and the Bank of Japan could ease policy further when it meets next week to offset any impact from possible easing by the Fed. The dollar index fell to a four-month low of 79.973, and was last at 80.009, down 0.3 percent. The greenback also slipped to a three-month trough against the Swiss franc of 0.9393 franc. In early New York trading, the dollar was down 0.5 percent at 0.9411 franc. The growth-linked Canadian dollar rose to a one-year high against the U.S. dollar, buoyed in part by the Bank of Canada's tightening bias. The U.S. dollar was last down 0.5 percent at C$0.9724 Some analysts say the greenback could drop to C$0.9652, the 76.4 retracement of its move from a 2011 low of $0.9407 to this year's high of C$1.0445. The Canadian dollar has also outperformed the Australian and New Zealand dollars in the past few sessions. "We are bullish on the Canadian dollar," added Stuart Frost, head of absolute returns and currency at fund managers RWC Capital. "The central bank has a tightening bias and the economy is doing well." Link this Share this Digg this Email Reprints

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