FOREX-Euro nears 2-week high on Greece, U.S. budget optimism

Tue Nov 20, 2012 3:16am IST

* Euro gains on prospects of deal on Greece funding

* Euro zone finance ministers give tentative go-ahead for Greece funds

* Better signs on U.S. fiscal cliff lift risk sentiment

* BoJ ends 2-day meeting on Tuesday, no monetary easing expected

By Julie Haviv

NEW YORK, Nov 19 (Reuters) - The euro rose to a near two-week high against the U.S. dollar on Monday, buoyed by appetite for risk on optimism that Greece will receive more funding and signs of progress on resolving a looming U.S. fiscal crisis.

The common currency shared by the 17 euro zone countries, however, is still down 1.2 percent so far in November and analysts said it should struggle to retain gains even if concerns about Greece abate.

Euro zone finance ministers will give a tentative go-ahead for the disbursement of 44 billion euros in emergency loans to Greece on Tuesday, but the money will only be paid on Dec. 5 if the country meets all remaining conditions.

While the promise of additional funds for Greece removes an important psychological obstacle, the country's economic influence in the euro zone is relatively minor compared with that of debt-burdened Italy and Spain.

Spain is the euro zone's fourth-largest economy and it has not yet applied for a bailout. A bailout request would likely cause the euro to rally above $1.30, according to strategists, as it would pave the way for the European Central Bank to buy Spain's bonds and lower the country's borrowing costs.

"For the euro/dollar to see an extended run ... a serious improvement in risk appetite is needed, with a Spanish bailout or an exceptionally quick compromise to the U.S. fiscal slope necessary as the proper catalyst," said Christopher Vecchio, currency analyst at DailyFX in New York.

The euro was last up 0.5 percent at $1.2804, having hit a high of $1.2819, its highest since Nov. 7.

Another negative for the euro is the fact that the euro zone's economy remains mired in a recession while the U.S. economy has been steadily improving, as made evident by the latest data on the housing market.

Home re-sales unexpectedly rose in October while home-builder sentiment rose to its highest in more than six years.

Analysts at Morgan Stanley recommended buying the euro at $1.2730, with a target of $1.33 and a stop at $1.2650.

FISCAL CLIFF CLIFFHANGER

Risk appetite improved, with world stock markets recovering some of their sharp losses last week, fueled by comments from U.S. lawmakers who indicated that compromises are possible in negotiations to avert $600 billion in tax increases and spending cuts due to start kicking in January.

Many believe this "fiscal cliff" threatens to send the U.S. economy back into recession, but the dollar would benefit in this scenario due to risk aversion.

The dollar should weaken against the Canadian dollar and British pound into year-end, according to Camilla Sutton, chief currency strategist at Scotiabank in Toronto.

"The focus post-U.S. election has been on the fiscal cliff, which we recognize as an important risk; however we believe that markets have moved too far into tunnel vision and are neglecting other important dollar drivers," she said.

"The most important of which is the Fed meeting on Dec. 12, where we expect QE3 to be expanded to include Treasuries (at the conclusion of Operation Twist)."

The Fed's Operation Twist entails selling short-term securities in exchange for long-term bonds.

Meanwhile, investors have been selling the yen after elections were called for Dec. 16 and the leader of the opposition Liberal Democratic Party called on the BOJ to print "unlimited yen" and set rates at zero or below.

The yen slipped from its highs into negative territory during late New York trade against the greenback. Caution prevailed ahead of Tuesday's BOJ policy meeting, with most analysts expecting no new monetary easing.

"The BOJ is meeting tonight and we don't expect additional easing steps. But I think markets are looking ahead to how the BOJ will react to a new government with an extremely dovish stance," said Eric Viloria, chief currency strategist at Forex.com.

"There is a possibility that there could be less independence for the central bank going forward and the market is preparing for that," he said.

The dollar last traded up 0.14 percent to 81.38 yen, according to Reuters data.

Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Barack Obama in India

Reuters Showcase

Coal Mining

Coal Mining

India to open coal to commercial mining firms soon, minister says  Full Article 

RBI Loan Rules

RBI Loan Rules

RBI relaxes overseas loan recast rules   Full Article 

E-commerce Firms

E-commerce Firms

Amazon, e-commerce rivals fuel commercial property boom in India  Full Article 

Growth Forecasts

Growth Forecasts

Indian economic growth forecasts pegged back, despite rate cuts: Reuters Poll.  Full Article 

Uber is Back

Uber is Back

Uber back in Delhi; govt says must await approval.  Full Article 

Markets at Record

Markets at Record

Sensex rises to record after ECB stimulus programme.  Full Article 

Pharma Sector

Pharma Sector

Ipca Labs hit by FDA ban on plant for standard violations.  Full Article | Related Story 

Forex Reserves

Forex Reserves

India FX reserves at record high as RBI fortifies defences  Full Article 

QE for Euro Zone

QE for Euro Zone

ECB launches 1 trillion euro rescue plan to revive euro economy.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage