Reuters: US Dollar Report: FOREX-Euro rises on bailout fund optimism; dollar slumps

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FOREX-Euro rises on bailout fund optimism; dollar slumps Sep 11th 2012, 15:27 Tue Sep 11, 2012 11:27am EDT * German court expected to back euro zone bailout fund * Speculation of Fed easing weighs broadly on dollar * Moody's warning on U.S. 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 advanced to a four-month high 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 this week to boost a slumping U.S. economy. Euro gains, however, 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 $1.2854, its highest since May 15. It blew past its 200-day moving average around $1.2834. It was last trading at $1.2847, up 0.7 percent 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 a German court saying 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 Federal Reserve meeting on U.S. monetary policy 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, ... 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 weaker-than-expected payrolls report, economists saw a 60 percent chance of the Fed embarking on quantitative easing 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 Tuesday the United States could lose its triple-A debt rating if next year's budget talks do not reduce over time the country's debt. "While nothing new, this just reinforces the fiscal troubles in the U.S. and a big blow to investor confidence in the country," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. The greenback fell to 77.73 yen, its lowest in more than three months. It was last at 77.81, 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 79.856, and was last at 79.901, down 0.4 percent. The greenback also slipped to a three-month trough against the Swiss franc of 0.9389 franc. In midday New York trading, the dollar was down 0.7 percent at 0.9396 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$0.9726. The Australian dollar rose to a nearly three-week high versus the greenback. It traded past a key US$1.04 options barrier that had capped it the last few weeks. It traded as high as US$1.0442, its strongest since Aug. 24, and was last at US$1.0438, up 1 percent. Link this Share this Digg this Email Reprints

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