Reuters: US Dollar Report: FOREX-Euro rises for 2nd day as Spanish bailout seen imminent

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FOREX-Euro rises for 2nd day as Spanish bailout seen imminent Oct 2nd 2012, 13:58 Tue Oct 2, 2012 9:58am EDT * Euro rangebound as investors await developments in Spain * 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 rose for a second straight session on Tuesday, pulling further away from recent three-week lows against the dollar 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. A request for a bailout is viewed as positive for Spain and therefore 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. "The sooner the better for markets as every hint of a looming request sends markets higher." 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, suggesting any euro upside may be modest. 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 0.4 percent higher on the day at $1.2937, rising from Monday's low near $1.2802, its lowest in three weeks. Market players reported bids from Asian central banks at around $1.2880 with offers to sell at $1.2950, confining the currency to a range. 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. While a request for a bailout by Spain could see a short-term rally in the euro, 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 101.03 yen. The dollar rose 0.1 percent against the Japanese currency to 78.10 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. The Aussie dollar fell to US$1.0291, its lowest level since early September, also weighed down by concerns about slowing growth in China. It was last down 0.4 percent at US$1.0314. The euro climbed around 0.9 percent to A$1.2558 . 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." Link this Share this Digg this Email Reprints

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