Reuters: US Dollar Report: FOREX-Euro pull-back seen limited by Fed easing bets

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FOREX-Euro pull-back seen limited by Fed easing bets Sep 10th 2012, 08:31 Mon Sep 10, 2012 4:31am EDT * Euro edges lower vs dollar after Friday's rally * Fed monetary easing speculation to weigh on dollar * Investors await Dutch elections, German court ruling By Nia Williams LONDON, Sept 10 (Reuters) - The euro eased against the dollar on Monday but stayed close to a near four-month high hit on Friday after below-forecast U.S. jobs data fanned speculation the Federal Reserve may launch more monetary stimulus this week. Heightened expectations that the Fed could announce another round of quantitative easing, known as QE3, after a two-day policy meeting ends on Thursday were likely to support demand for the euro in coming days, market players said. Sentiment towards the single currency was more positive after the European Central Bank last week unveiled a plan to cut borrowing costs for indebted peripheral countries, although some investors took profit on the euro's rally. Analysts said with Dutch elections and a German constitutional court ruling on the euro zone permanent bailout fund also due this week, investors would be wary of pushing the single currency much higher. "There's a good deal of event risk on the agenda but for now even the euro bears are reluctant to be too bearish," said Jeremy Stretch, head of currency strategy at CIBC. "It may be the case that we grind higher with the Fed decision on Thursday being the predominant driver. The risks of more QE have increased since (U.S. jobs data on) Friday." The euro dipped 0.1 percent to $1.2797, still near Friday's high of $1.2818 on trading platform EBS, which was its strongest since May 22. Technical analysts said there was strong resistance from the 200-day moving average at $1.2836, but the fact the euro had climbed above $1.2750 suggested further gains were possible. The single currency could start rising towards $1.30 if the Fed announces QE3 this week and Germany's constitutional court backs the ESM bailout fund in a ruling due on Wednesday, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore. But it was still vulnerable to developments in Spain, which may have to ask for a bailout, and Greece, whose foreign lenders rejected parts of an austerity package prepared by the government. "We may see a false dawn, so to speak, and a rise to around $1.30," Okagawa said. "But if you ask whether that will lead to a full-blown change in trend, I think that might be difficult." DOLLAR UNDER PRESSURE The dollar index, which measures the dollar's value against a basket of currencies, stood at 80.283, stuck near a four-month low of 80.151 hit on Friday after data showed U.S. jobs growth slowed sharply in August. In a Reuters poll conducted after the numbers, economists saw a 60 percent chance of the Fed embarking on QE3 this week, compared with 45 percent in a late August poll. More stimulus from the Fed would make it attractive for investors to use the dollar as a funding currency to buy higher yielding assets in carry trades. Expectations of Fed easing helped lend support to the Australian dollar, which retreated slightly after hitting a two-week high of US$1.0401 on Friday. The Australian currency was last down 0.3 percent at $1.0353 , having come under pressure after data showed a surprising year-on-year drop in China's imports in August. The Aussie dollar tends to be sensitive to economic data from China, Australia's biggest export market. The U.S. dollar was steady at 78.26 yen, hovering near a one-month low of 78.016 hit on Friday. Japanese authorities may start stepping up their rhetoric against the yen's rise versus the dollar if the dollar falls below the early August low of 77.90 yen, SMBC's Okagawa said. Link this Share this Digg this Email Reprints

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