For the past few months, the U.S. Federal Reserve has been squarely in the financial markets' corner, thanks to its massive dollops of monetary stimulus. But signs that the central bank is discussing reducing that support by purchasing fewer bonds mean that trading is likely to get bumpier in coming months. Full Article
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FOREX-Euro gains as ECB's Draghi defends bond-buying plan
* ECB's Draghi defends bond-buying plan * Bundesbank checking legality of ECB bond-buying - report * Euro rebounds from one-week low * Spain, Greece worries weigh on euro By Julie Haviv NEW YORK, Sept 25 (Reuters) - The euro rose against the dollar on Tuesday, rebounding from a more than one-week low as European Central Bank President Mario Draghi defended the central bank's bond-buying plan not long after a media report said German lawyers were checking its legality. Draghi offered a vigorous defense of the bank's plans to a skeptical German audience and said it was now up to governments to follow up with decisive policy steps of their own. An ally of Germany's powerful Bundesbank at the ECB also defended the new bond-buying program. Ewald Nowotny, an ECB governing council member and Austria's central bank governor, said the ECB was on a firm footing with its plan to stem the euro zone crisis. The euro was earlier weighed down by a media report that said Bundesbank lawyers were checking the legality of the ECB's plan. ID:nL5E8KP001] "The euro weakened during the European session on rumors that the ECB's program was being questioned on the legal front and on uncertainty about what Draghi might say," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto. "As Draghi spoke he removed a lot of uncertainty and that helped support the euro." Senior ECB sources, meanwhile, have said the bank's legal department studied the legality of bond-buying carefully before the Sept. 6 decision to launch the program. The euro last traded at $1.2948, up 0.1 percent, after dropping to $1.2885, its lowest since Sept. 13. If the euro turns lower again it could target the 200-day moving average at $1.2827. "So far this week we have had a lot of headline noise," Sutton said. "But next week will bring major events that could make a significant impact on the euro." The ECB will holds its next policy meeting on Oct. 4 and U.S. nonfarm payrolls data, a key monthly market driver, is due on Oct. 5. This month the U.S. Federal Reserve announced a third round of bond buying, so-called quantitative easing. The Fed said it will continue buying bonds until it sees a marked improvement in the labor market. The euro should remain under pressure if Spain drags its feet over requesting an international bailout. This must happen in order for the ECB to begin buying its bonds and, until it does, analysts say the euro is likely to weaken. Last week, the euro hit a 4-1/2-month peak of $1.3169 on optimism as a result of the ECB plan and after the Federal Reserve announced aggressive quantitative easing earlier this month to boost a sluggish U.S. economy. GREECE STILL A CONCERN Worries about the size of Greece's deficit also weighed on the euro, with German's Der Spiegel magazine reporting it could be 20 billion euros, nearly double previous estimates. "Fears about Europe's situation remain among investors, with the focus mostly on Spain, but Greece is also still a concern," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. Spain is expected to unveil new structural reforms and its draft budget plan for 2013 this week, with investors also awaiting results of stress tests on its banking sector. A Moody's credit rating review of Spain is also expected, and it could downgrade Spanish debt to junk status. Economic data buoyed the dollar against the yen. U.S. home prices continued to rise in July, the latest evidence that the recovery in the housing market is on track. Moreover, U.S. consumers' moods improved in September, with confidence jumping to the highest level in seven months as Americans were more optimistic about the job market and income prospects. Japanese Finance Minister Jun Azumi told reporters he was ready to take firm measures on currencies as long as he was finance minister. He said there would be no vacuum in currency policy due to his pending departure to take a new position in the ruling Democratic Party. The dollar hit a one-month high of 79.22 yen on Sept. 19 after the Bank of Japan announced further monetary easing. The dollar was last up 0.1 percent at 77.92 yen, according to Reuters data.
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