Reuters: US Dollar Report: FOREX-Euro up for 2nd day vs dollar as Spain aid seen imminent

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FOREX-Euro up for 2nd day vs dollar as Spain aid seen imminent Oct 2nd 2012, 16:33 Tue Oct 2, 2012 12:33pm EDT * Euro gains constrained by uncertainty, weak economy * Bids from Asian central banks cited at $1.2880 * Aussie dollar falls after RBA rate cut By Gertrude Chavez-Dreyfuss NEW YORK, Oct 2 (Reuters) - The euro gained for a second straight session against the dollar on Tuesday, pulling further away from recent three-week lows, on growing expectations the euro zone's fourth-largest economy Spain is ready to seek a bailout. European officials told Reuters on Monday Spain was ready to request a euro zone bailout for its public finances as early as next weekend, but Germany had signaled that it should hold off. This was denied, however, by Spain's Prime Minister Mariano Rajoy, who said on Tuesday a request for European aid was not imminent. He also said Spain's central government had agreed with regional leaders on a fiscal consolidation path. . "Spain said a bailout demand was not imminent and the market keeps it calm," said Kit Juckes, head of FX strategy at Societe Generale in London. "The open question is whether the market will take profit when they do. For now, the market continues to run ahead." A request for a bailout is viewed as positive for Spain and the euro because it would trigger purchases of Spanish debt by the European Central Bank that could lower the country's borrowing costs. It also removes another layer of uncertainty in the region's three-year old debt crisis. "(Spain's) recent budget proposal...seemed intentionally designed with a bailout request in mind and the market is assuming it's just a question of when," said Brad Bechtel, managing director at Faros Trading in Stamford, Connecticut. But uncertainty over the timing of the request kept investors on edge with many selling the euro at higher levels. Another risk factor is rating agency Moody's soon-to-be announced review of Spain's rating, which could see it cut to junk status. Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, added that worries about euro zone growth would keep the ECB in easing mode, capping any euro upside. Analysts said safe-haven currencies like the U.S. dollar and the yen would be in demand until Madrid asked for aid. The euro was last 0.5 percent higher on the day at $1.2946, rising from Monday's low at $1.2802, its lowest in three weeks. It has eased from a four-month peak of $1.3169 hit in mid-September after the ECB announced its bond-buying plan to lower yields on peripheral euro zone debt and the U.S. Federal Reserve teed up another round of monetary easing. Still, some money managers are wary of the single currency in the medium to long term, given gloomy economic prospects, tough austerity measures and rising unemployment in the euro zone. "From a macro perspective, we would look to short the euro against the dollar into any move higher as there is no growth in the euro zone," said Howard Jones, adviser at RMG Wealth Management. "Value in the euro lies in the crosses, especially against the yen given Japan's own problems and against the Australian dollar because we are seeing commodity prices coming off." Against the yen, the euro was 0.5 percent higher at 100.98 yen. The dollar was slightly higher against the Japanese currency R to 78.01 yen, having hit a more than one-week high of 78.21 after Japan's new finance chief warned of possible action to cap the currency's rise. RATE CUT DENTS AUSSIE The growth-linked Australian dollar fell to a four-week trough against the U.S. currency and slid against the euro after the Reserve Bank of Australia cut interest rates by a quarter point and left the door open for more easing. While the cut to 3.25 percent was not a complete surprise, some analysts had thought Australia's central bank would wait until November to lower interest rates. Western Union's Manimbo said the key to the outlook for RBA policy is the economic situation in China, Australia's No. 1 export market. "Further signs of weakness (in China) would keep pressure on the RBA to cut rates further." The Aussie dollar fell to US$1.0291, its lowest level since early September. It was last down 0.7 percent at US$1.0288. The euro climbed around 1.2 percent to A$1.2591 . Neal Gilbert, currency strategist at GFT in New Jersey, recommended selling the Aussie dollar against the greenback on any rally above the US$1.03 level, targeting US$1.0220. Link this Share this Digg this Email Reprints

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