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FOREX-Euro hits 7-week high on speculation ECB will take action
August 21, 2012 / 8:22 PM / 5 years ago

FOREX-Euro hits 7-week high on speculation ECB will take action

* 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 rose to a seven-week
high against the U.S. dollar on Tuesday on talk t he European
Central Bank ma y ac t soo n to lo wer the borrowing costs of Spain
and Italy, allaying concerns about the debt crisis that has long
plagued the region. 
   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 report 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 $1.24 62 , up 1 percent on the day. 
    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. I t last traded at 98.7 2, up 0 .7 p ercent on the
    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 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.
    Also on the radar screen is Fed Chairman Ben Bernanke's
annual speech in Jackson Hole, Wyoming at the end of the month.
It was at this same event in 2010 that the Fed laid the
groundwork for a second round of bond buying to buoy the
economy, called quantitative easing. 
    Joseph Balestrino, senior vice president, fixed income
strategist at Federated Investment Management in Pittsburgh,
Pennsylvania, said he does not expect the Fed to embark on more
stimulus at this point.
     "At the next Fed meeting I think they will do nothing
again," he said. "At Jackson Hole, Bernanke will likely
acknowledge that the economy is still on shaky ground, but not
sufficiently weak to warrant explicit QE3."
    If the Fed does decide to launch QE3 it would likely entail
buying mortgage-backed securities, he said. 
    The dollar was last down 0. 2 percent against the yen at
79.2 4 yen, d own from the high of 79.66 yen hit on Monday,
the highest since July 12, according to Reuters data.

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