Reuters: US Dollar Report: FOREX-Euro up as Italy forms government, dollar struggles

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FOREX-Euro up as Italy forms government, dollar struggles Apr 29th 2013, 11:43 Mon Apr 29, 2013 7:43am EDT * Euro rises after Italy swears in new government * Focus on Fed and ECB policy meetings, U.S. data * Dollar sags vs yen but long term dollar/yen uptrend intact By Anirban Nag LONDON, April 29 (Reuters) - The euro rose against the dollar on Monday, lifted by the formation of a government in Italy, but is likely to be held in check by expectations of an interest rate cut by the European Central Bank. Demand for Italian bonds helped the euro after centre-left politician Enrico Letta took over as prime minister, ending two months of uncertainty in the euro zone's third-largest economy. The euro was up 0.4 percent at $1.3085, with hedge funds cited as the key buyers. Traders said sellers would probably emerge around $1.3100, where option expiries were reported. "Investors are trying to balance two risks: a further reduction in peripheral bond yield spreads which is euro positive, and the prospects of further easing by the ECB which historically has proven to be euro negative," said Valentin Marinov, head of European G10 FX strategy at Citi. Many in markets expect the ECB to cut its main interest rate by 25 basis points from 0.75 percent on May 2, eroding the euro's interest rate advantage over the dollar and yen. However, some said broader dollar weakness after recent weak U.S. data, could see the euro hold on to its gains. The U.S. economy grew more slowly than expected in the first quarter and with inflation anchored, expectations are growing that the Federal Reserve is unlikely to cut back its quantitative easing programme anytime soon. "That is weighing on the dollar," said Ian Gunner, portfolio manager at Altana Hard Currency Fund. Gunner said only a cut in the ECB's zero percent deposit rate, which he did not expect would see the euro fall sharply. The dollar index shed 0.4 percent to 82.16. Chartists said that if U.S. jobs numbers due on Friday were weak, the index could test its April 16 low of 81.716. If Fed policymakers, beginning a two-day policy meeting on Tuesday, flag fresh risks to growth some of the long dollar positions put in place in recent months could be trimmed. The dollar fell 0.2 percent to 97.85 yen. It set a four-year high of 99.95 yen earlier in April after the Bank of Japan announced a major stimulus programme. The dollar has faced stiff resistance at 100 yen, but many expect it to firm against the yen as Japanese investors such as insurance companies and pension funds allocate some of their portfolios to overseas assets in coming months. Link this Share this Digg this Email Reprints

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