FOREX-Dollar gains vs euro, yen as Bernanke gives no QE3 signal

Thu Mar 1, 2012 3:24am IST

Stocks

   

* Fed Bernanke refrains from signaling more bond buying
    * ECB lends out 530 bln euros in three-year lending
    * U.S. economic data paints brighter picture


    By Julie Haviv	
    NEW YORK, Feb 29 (Reuters) - The dollar gained against
the euro and yen on Wednesday as factors ranging from
month-end positioning to a European Central Bank cash infusion
and lowered expectations of another Federal Reserve bond-buying
binge raised the greenback's appeal.	
    Robust U.S. data, which typically increases risk
appetite, favored the dollar versus the euro as it highlighted a
growing disparity between the economies on both sides of the
Atlantic.	
    Ongoing financial strains in Europe prompted the ECB to
infuse over a half a billion euros into financial markets. 	
    "The ECB's auction in some ways could be interpreted as a
form of quantitative easing," said Charles St-Arnaud, foreign
exchange strategist at Nomura Securities in New York. 	
    "But, today was a day where everyone was a little confused
about the euro and there was not any big data out of Europe to
trade off," he said. "Data in the U.S. was strong, which
benefited the Canadian dollar, but not the Australian and New
Zealand dollars.	
    "When it comes down to it, there were a lot of moving parts
today and not just one story drove the market."	
    The euro accelerated losses against the dollar to hit
a near one-week low. The dollar rose sharply against the yen
 after Fed Chairman Ben Bernanke told a congressional
panel the U.S. unemployment rate had fallen more quickly than
expected. 	
    Bernanke offered a tempered view of the U.S. economy and
stopped short of signaling further Fed bond purchases, dashing
the hopes of some traders in financial markets who were betting
on more monetary stimulus.	
    The Fed's two asset-purchase programs, known as quantitative
easing, helped stimulate the economy but hurt the dollar's value
as they were tantamount to printing money.	
    Bernanke's testimony "confirms the fact the Fed is in
wait-and-see mode," said Sean Incremona, an economist with 4Cast
Ltd in New York.	
    The euro fell as low as $1.3313 and last traded  
down 1.1 percent at $1.3318. The greenback also rose against the
yen, hitting a high of 81.31 before receding to 81.18,
still up 0.9 percent for the day.	
    Nevertheless, it has been a strong year so far for the
single currency, which has risen 2.9 percent against the dollar
and 8.7 percent against the yen. So far this year, the dollar
has gained 5.6 percent against the yen. 	
    U.S. economic growth was slightly faster than initially
thought in the fourth quarter and a gauge of factory activity in
the Midwest hit a 10 month-high in February, pointing to
underlying strength in the economy. 	
    A report from the Federal Reserve showed the economy
expanded modestly in January through mid-February as hiring
picked up a bit across several districts. 	
 
   	
    ECB ADDS LIQUIDITY	
    The European Central Bank loaned 530 billion euros in cheap
money on Wednesday, slightly more than analysts had expected for
the bank's second long-term refinancing operation.
 	
    More than 800 banks applied for funding - up from 523 banks
in its first auction in December. This may suggest that some of
the stigma attached to the ECB's Longer Term Refinancing
Operation, or LTRO, may have dissipated. On the other hand, it
could also mean more banks are in a vulnerable position,
requiring more funds.	
    While increased liquidity typically weakens a currency, the
euro has not weakened substantially since the first LTRO,
perhaps because it was a response to increased liquidity demand,
according to Barclays Capital.	
    "The second 3-year LTRO is likely to be more of a liquidity
supply shock and weaken the EUR," the bank said. "We recommend a
short EUR position against an equal weighted basket of USD and
NOK (Norwegian krona)."	
    The ECB lending eased some fears over the euro zone's
sovereign debt crisis, analysts said, but did not address
longer-term worries in the region.	
    The ECB's move helped riskier currencies earlier in the day,
lifting the Australian dollar to a 7-month high against
the U.S. dollar, while pushing the New Zealand dollar 
to a 6-month high and the Canadian dollar a five-month
peak against the greenback.	
    But those gains left the currencies vulnerable to
profit-taking in month-end rebalancing and they traded down.
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