Reuters: US Dollar Report: FOREX-Euro hits 4-month high vs dollar on German ruling

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FOREX-Euro hits 4-month high vs dollar on German ruling Sep 12th 2012, 18:12 Wed Sep 12, 2012 2:12pm EDT * German court decision underpins demand for riskier assets * More gains expected on speculation Fed to ease * Dollar index falls to four-month low * Swiss National Bank expected to keep currency cap By Julie Haviv NEW YORK, Sept 12 (Reuters) - The euro reached a four-month peak against the dollar on Wednesday after Germany's Constitutional Court approved the euro zone's new rescue fund and budget pact, allaying fears about the region's three-year-old debt crisis. While the court approval came with conditions, it was enough to lift global stocks and lower borrowing costs for Italy and Spain, the euro zone's third and fourth largest economies, respectively. The euro climbed to $1.2936, its highest since mid-May, blowing past reported option barriers at $1.2900. Positive momentum continued for the euro and higher-yielding currencies, a trend that began after the European Central Bank unveiled plans last week to lower borrowing costs for indebted countries via bond purchases. The euro gained in six out of the eight sessions in September. The single currency has risen more than 7 percent since it hit a two-year low of around $1.2040 in July, boosted after ECB President Mario Draghi pledged to do whatever it takes to preserve the currency. More gains are expected if the Federal Reserve opts to implement further monetary easing on Thursday, leaving the euro with the potential to test the $1.30 level. "The euro continues to be in steady favor as a series of events have proven to be supportive, including today's ruling by Germany's top constitutional court," said Samarjit Shankar, managing director of global strategy at BNY Mellon in Boston. Germany's Constitutional court said the European Stability Mechanism could go ahead but with the condition that any German contribution above 190 billion euros would require prior approval by the lower house of parliament. But analysts and traders still worried that the euro zone's debt problems could temper the euro's rise. "It is now time to take stock. How much further can the euro rally?" asked Jens Nordvig, head of G10 FX strategy at Nomura Securities in New York. He believed that there would be fewer positive European catalysts from here on and said "the short-squeeze on the euro is now in its final phase, and we will be looking for fresh short opportunities." The euro was last at $1.2894, up 0.3 percent. It also rose to its highest in more than two months against the Japanese yen at 100.63 yen and last traded at 100.42 yen, up 0.5 percent. A potential source of disruption for the euro is a general election in the Netherlands on Wednesday, though polls indicate radical anti-euro parties have lost the momentum they had just a month ago. DOLLAR FALLS BEFORE FED The dollar fell to a four-month low against a basket of currencies before Thursday's Federal Reserve decision, with the dollar index dropping to 79.522. BNY Mellon's flows data showed that the dollar was the most sold currency across the board on Wednesday, with sterling and the Canadian and New Zealand dollars the most bought. The Fed looks set to launch a third round of bond purchases to try to drive borrowing costs lower and boost a flagging economy, especially after weak jobs data last week. However, analysts said expectations for more quantitative easing were already high, which may limit the currency's drop. The Swiss National Bank is expected to keep its target range for the Swiss franc LIBOR unchanged and retain its cap on the euro/Swiss franc currency pair at 1.20 francs when it announces its monetary policy decision on Thursday. The yen held near a 3-1/2-month high, trading at 77.86 per dollar. Focus on potential Fed action this week and a Bank of Japan viewed to be on the sidelines should keep pressure on the dollar for the near term. Link this Share this Digg this Email Reprints

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