Euro saved by smooth Italy debt auction; BOJ news awaited

SYDNEY Thu Feb 28, 2013 4:31am IST

1 of 3. A picture illustration taken with the multiple exposure function of the camera shows a one Euro coin and a map of Europe, January 9, 2013.

Credit: Reuters/Kai Pfaffenbach

Polluted waters of China

Polluted waters of China

Growing cities, overuse of fertilizers, and factory wastewater have degraded China's water supplies to the extent that half the nation's rivers and lakes are severely polluted.  Slideshow 

SYDNEY (Reuters) - The euro held its ground against the dollar and yen on Thursday, with euro bulls taking heart after a relatively smooth auction of Italian government bonds helped ease worries about the country's inconclusive election.

The common currency traded at $1.3134, having bounced from an eight-week trough of $1.3018 plumbed earlier in the week. Against the yen, the euro fetched 121.14, up from a five-week low of 120.20.

Euro longs were shaken on Monday after the February 24-25 election gave none of Italy's political parties a parliamentary majority. The outcome raised the risk of prolonged uncertainty in the euro zone's third largest-economy and a renewal of the region's financial crisis.

Despite those fears, a sale of Italian government bonds on Wednesday drew solid demand, helping soothe jitters that the political deadlock could destabilise Europe's second-biggest sovereign debt market.

Still, analysts said the euro is unlikely to climb too far as long as uncertainty in Italy persists. Highlighting the challenges ahead, two of the country's influential party leaders ruled out the most likely option to form government and avoid a new election.

"I believe there's a growing consensus that new elections will have to take place at some point in the next few months," said Christopher Vecchio, currency analyst at DailyFX.

The steadier euro, for now, saw the dollar index .DXY retreat from a six-month high of 81.948 reached earlier in the week. It was last at 81.559.

On the yen, the dollar was a tad firmer at 92.21, having found its footing after Monday's slide to 90.85. The selloff in the euro on Monday had sparked a vicious wave of short-covering in yen crosses.

Japan's prime minister is expected to nominate Asian Development Bank President Haruhiko Kuroda as BOJ governor and Kikuo Iwata, an academic, as one of the two deputy governors as early as Thursday.

News that two doves will likely lead the BOJ had prompted investors to sell the yen as they positioned for the central bank to deliver bold policies to jumpstart the world's third biggest economy.

The dollar outperformed its Japanese counterpart even after Federal Reserve Chairman Ben Bernanke again defended the central bank's forceful easing of monetary policy.

Bernanke, facing a congressional panel for a second day, also downplayed signs of internal divisions, saying the policy of quantitative easing has the support of a "significant majority" of top central bank officials.

Commodity currencies, hit this week by renewed euro zone worries, also appeared to be on the mend. The Australian dollar was at $1.0225, recovering from a slide to a four-month low at $1.0183.

The Aussie's immediate focus is investment spending data due at 0030 GMT. Any disappointment in the figures, particularly a downgrade of future spending plans, could bolster expectations for an interest rate cut and undermine the Aussie.

Markets are currently giving only a one-in-three chance of a cut at the March 5 policy meeting.

"This number will be key in setting market expectations for RBA policy, with the potential for a March or April cut becoming live," Martin Whetton, analyst at Nomura said.

(Editing by Wayne Cole)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Top News

REUTERS SHOWCASE

Kerry's India Visit

Kerry's India Visit

Kerry presses India on WTO deal ahead of arrival  Full Article 

Big Infra Deal

Big Infra Deal

Piramal, Dutch APG tie up for $1 bln infra investment  Full Article 

E-Commerce

E-Commerce

Amazon says to invest $2 billion more in India   Full Article 

Lupin Results

Lupin Results

Q1 net profit up 56 percent on higher U.S. drug sales   Full Article 

Twitter Results

Twitter Results

Twitter assuages growth concerns for now as shares soar 35 percent  Full Article 

Auto Sector

Auto Sector

VW closes in on Toyota as global auto leader  Full Article 

Fed Meeting

Fed Meeting

Fed seen trimming bond buys, could offer vague rate clues  Full Article 

Reuters India Mobile

Reuters India Mobile

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