FOREX-Greece optimism lifts euro after dip on French rating

Tue Nov 20, 2012 6:28pm IST

* Euro steadies after slip on French rating cut

* Euro zone finance ministers meet to discuss Greek aid

* Yen near seven-month low after BOJ holds policy

By Philip Baillie

LONDON, Nov 20 (Reuters) - The euro steadied against the dollar on Tuesday as cautious optimism that euro zone ministers would release funds for Greece offset losses after a cut to France's credit rating.

Finance ministers meet later to discuss unlocking delayed aid payments to Greece, a day after Athens passed laws to enforce budget targets.

The single currency was last close to flat on the day at $1.2810, holding above a Nov. 13 low of $1.2706.

Signs that Greece seemed to be on track to receive the funding supported demand for the euro, which clawed back earlier losses after ratings firm Moody's stripped France of its triple-A status late on Monday.

Some analysts said the cut did not come as a surprise after Standard & Poor's downgraded France in January, and the finance ministers meeting could have a bigger impact on the euro if policymakers fail to meet market expectations.

"The main driver in terms of the news flow was the downgrade of France overnight but the knee-jerk reaction we saw overnight was very short lived," said Michael Sneyd, FX strategist at BNP Paribas.

"That tells us the downgrade was not a surprise...The focus today is the Eurogroup meeting and there we are looking for some reasonable progress to be made for Greece's next aid tranche."

He said he was looking for progress on Greece to help the euro consolidate above $1.28, adding it could reach $1.30 if U.S. policymakers agree a solution to avert $600 billion of tax hikes and spending cuts, dubbed the "fiscal cliff".

Strategists said failure to reach an agreement on loans to Greece could see the euro give up its gains of recent days and fall back below $1.28, targeting the Nov. 13 low of $1.2661.

"If this does drag on beyond today there's scope for it to cause some disappointment for the euro," said Jane Foley, senior currency strategist at Rabobank.

Some investors were wary after Finland's finance minister, Jutta Urpilainen, said she was unsure Greece's next loan tranche would be approved at the meeting.

YEN WEAKNESS PERSISTS

The dollar rose 0.1 percent versus the yen to 81.50, nearing a seven-month high of 81.59 yen hit on Monday amid mounting political calls for more aggressive monetary expansion.

The yen looked vulnerable even after the Bank of Japan held off from additional monetary stimulus at its latest policy meeting, as expected, after having eased policy in September and October.

The yen has slid over the past week on market expectations that a likely new Japanese government after a Dec. 16 election would push the BOJ toward more forceful monetary stimulus.

Shinzo Abe, the leader Japan's opposition Liberal Democratic Party, has called for the BOJ to take bolder action, including "unlimited easing", pushing interest rates to zero or below and directly underwriting bonds issued to fund public works spending.

Some analysts said the dollar may have more room to rise against the Japanese currency in the near term and could break above 82 yen, a level last seen in April.

The euro also made gains against the yen, hitting a four-week high of 104.50 yen.

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