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FOREX-Euro leaps to 7-week high on speculation ECB will act
August 21, 2012 / 6:52 PM / in 5 years

FOREX-Euro leaps to 7-week high on speculation ECB will act

* ECB seen closer to bond market action
    * Reluctance to push euro higher prior to ECB, EU meetings

    By Julie Haviv
    NEW YORK, Aug 21 (Reuters) - The euro surged to a seven-week
high against the U.S. dollar on Tuesday, fueled by speculation
the European Central Bank could soon act to stem the region's
debt crisis by lowering Spanish and Italian borrowing costs.
   Throughout August the euro has rallied and plunged almost 
daily depending on the latest headlines from Europe.
Uncertainties over the effectiveness of ECB bond-buying and
worries over the euro zone's debt and economic problems had kept
 the currency firmly below this month's high of $1.2443. 
    The euro, however, pierced that level after London's Daily
Telegraph on Monday gave support to a weekend article in
Germany's Der Spiegel magazine that said the ECB planned to put
a hard cap on Spanish and Italian bond yields.
    An ECB spokeswoman, asked about the Telegraph story,
repeated the central bank's statement after the Der Spiegel
report, saying it was misleading to report on policy decisions
that had not been taken.
    "We're in the midst of a risk rally, with expectations high
around what could happen in the first couple of weeks of
September," said Camilla Sutton, chief currency strategist at
Scotiabank in Toronto. 
    The ECB holds its next policy meeting on Sept. 6 and
European Union finance ministers meet on Sept. 14-15 - 10 days 
seen as critical for efforts to quell the crisis and keep Greece
in the single currency. 
    The U.S. Federal Reserve will meet on Sept. 12-13.
    "We may see a dovish Fed and an ECB that firms up its plan,"
Sutton said. 
    Until September, the euro should be tied to its summer range
of roughly between $1.21 to $1.2630, she said. 
    The euro rose to $1.2488, its highest since July 5,
exceeding the Aug. 6 peak of $1.2443 reached after ECB President
Mario Draghi pledged to do all it takes to preserve the euro.
Prior to Draghi's comments, the single currency fell to a
two-year low of $1.2040 on July 24.
    The euro was last at $1.2474, up 1.1 percent, the biggest
one day percentage move since Aug. 3.  
    Traders said it extended gains after triggering stop-loss
buy orders on the break above $1.2400.
    "The ECB must act in the bond market because threats, leaks
and promises have a limited lifespan. Without ECB intervention
Spanish and Italian rates will rise again as the countries no
longer have the confidence of the credit markets," said Joseph
Trevisani, chief market strategist at Worldwide Markets,
Woodcliff Lake in New Jersey
    The euro rose as high as 99.18 yen, its strongest
since early July. It last traded at 98.98, up 1 percent on the
day.
    The euro's gains against the dollar helped push sterling
 to a three-month high. The Canadian dollar rose to a 3
1/2-month high against the U.S. dollar.
    
    DIPLOMACY
    French President Francois Hollande and German Chancellor
Angela Merkel will meet on Thursday, a day before Greek Prime
Minister Antonis Samaras arrives in Berlin. 
    Samaras is expected to lobby for a two-year extension of
austerity measures to soften their impact, though he is unlikely
to win major concessions.
    The dollar was last down 0.1 percent against the yen at
79.32 yen, but off the high of 79.66 yen hit on Monday,
the highest since July 12. 
    Looking ahead, the dollar will likely react to the release
on Wednesday of minutes from the latest Federal Open Market
Committee meeting, the Fed's policy making arm.
    Any hint that the Fed may soon embark on a third round of
quantitative easing would have a negative impact on the dollar
as it is tantamount to the Fed's printing money and dilutes the
greenback's value.
    But any indication that QE3 is not imminent should buoy the
dollar.
    The Australian dollar, meanwhile, was last up 0.5
percent at  $1.0492 lifted by Australian central bank minutes
showing policymakers thought the full effects of previous
interest rate cuts had yet to be felt.

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