FOREX-Euro slips after Moody's cuts France; yen awaits BOJ

Tue Nov 20, 2012 7:43am IST

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* Moody's downgrades France by one notch to Aa1 from Aaa

* Yen hovers near 7-month low versus dollar

* BOJ rate decision expected around 0330-0530 GMT

By Masayuki Kitano

SINGAPORE, Nov 20 (Reuters) - The euro fell on Tuesday after Moody's stripped France of its prized triple-A rating, while the yen hovered near a seven-month low against the dollar ahead of a Bank of Japan policy decision due later in the day.

The Moody's downgrade of France chilled the euro, which had rallied to its highest level in nearly two weeks the previous day, helped by optimism that Greece will receive more funding.

Moody's cut France's sovereign credit rating by one notch to Aa1 from Aaa, citing an uncertain fiscal outlook and deteriorating economy.

The single currency dipped 0.2 percent from late U.S. trade on Monday to $1.2785, having regained a bit of ground after hitting an intraday low near $1.2765 earlier.

"It comes as a surprise to nobody. I don't think it has that much of an impact," said Rob Ryan, strategist at RBS in Singapore, referring to the Moody's downgrade of France.

"I think it came out in the dead hour between New York and Asia so it had a bit of impact there, but I don't think there's too much to it at this stage," he added.

The euro had a lift on Monday, buoyed by hopes that international lenders are getting closer on agreeing to release the next tranche of aid for Greece.

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.

Officials familiar with preparations for the finance ministers' meeting expect a "political endorsement in principle" on unfreezing loans to Athens.

The euro sagged 0.4 percent versus the yen to 103.93 yen .

The yen hovered near a seven-month low versus the dollar. The greenback eased 0.1 percent to 81.29 yen, not far from the dollar's seven-month high of 81.59 yen hit on Monday.

The Japanese currency has slid over the past week on market expectations that a new Japanese government to be formed after an election next month, will pressure the Bank of Japan into taking more aggressive monetary stimulus steps.

Against this backdrop, traders and analysts say the dollar may not fall too much against the yen if the BOJ stands pat as expected at its rate decision due later on Tuesday, with the Japanese currency seen likely to remain on the defensive.

The BOJ's rate decision is expected at around 0330-0530 GMT.

Shinzo Abe, the leader of the Liberal Democratic Party (LDP), which has a lead in opinion polls going into a snap election in December, has called on the BOJ for bolder policy action, including "unlimited easing", pushing interest rates to zero or below zero and directly underwriting bonds issued to fund public works spending.

Such calls for forceful BOJ easing may persist going into next month's election and support the dollar against the yen over the next few weeks, said Ryan at RBS.

"I don't see a reversal right now," Ryan said, adding that the dollar will probably head into the election a bit higher than where it stands now.

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