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, 13:06 Mon Apr 29, 2013 9:06am EDT * Euro rises after Italy swears in new government * Focus on Fed and ECB policy meetings * Dollar sags vs yen but long term dollar/yen uptrend intact NEW YORK, April 29 (Reuters) - The euro rose against the dollar on Monday, lifted by the formation of a government in Italy, though investors remained cautious ahead of a European Central Bank meeting from which many are expecting an interest rate cut. 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 dollar extended losses against the yen after a government report showed little inflation, with a price index for consumer spending dipping 0.1 percent, the first drop since November.. "Italy's Prime Minister Letta has established a new government with the new cabinet having been sworn in over the weekend and today's Italian 10-year auction had an average yield of 3.94 percent, the lowest since 2010," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. The euro was up 0.5 percent at $1.3095, with hedge funds cited among key buyers. The session peak of $1.3115, the highest since April 19, was reached midway through the London session. But many in the market 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. Other investors however are arguing for broader dollar weakness after recent weak U.S. data, saying the euro could hold on to its gains. The U.S. economy grew more slowly than expected in the first quarter and with inflation anchored, expectations are fading that the Federal Reserve could cut back its quantitative easing programme anytime soon. "That is weighing on the dollar," said Ian Gunner, portfolio manager at Altana Hard Currency Fund In London. Gunner said only a cut in the ECB's zero percent deposit rate, which he did not expect, would see the euro fall sharply. 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 0.3 percent to 97.75 yen. It set a four-year high of 99.94 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. Some US$2.6 billion in euros changed hands on Monday, compared with US$6.79 billion on the last Monday in March, Reuters Dealing. US$1.26 billion in yen traded, compared with US$2.08 billion on the last Monday in March. Link this Share this Digg this Email Reprints

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