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FOREX-Euro rises on healthy Spanish auction, ECB in focus
March 7, 2013 / 11:44 AM / in 5 years

FOREX-Euro rises on healthy Spanish auction, ECB in focus

* Euro rises as Spain hits top end of target at bond sale
    * Stays vulnerable to hints of future policy easing by ECB
    * ECB seen holding rates when decision announced at 1245 GMT
    * Dollar settles near 6-1/2 month high vs basket of

    By Anooja Debnath
    LONDON, March 7 (Reuters) - The euro rose against the dollar
on Thursday after a healthy Spanish debt auction somewhat eased
worries about the euro zone, although the single currency stayed
vulnerable before the outcome of the ECB's monthly meeting. 
    Spain sold 5 billion euros ($6.5 billion) at a triple-bond
auction, hitting the top end of its targeted amount and with
lower borrowing costs despite political uncertainty in Italy.
    The single currency had earlier edged up as some sovereign
investors pared recent bets against it. But traders said these
gains were likely to be fleeting and euro/dollar could slip to
three-month lows if European Central Bank president Mario Draghi
hints at interest rate cuts at his press conference at 1330 GMT.
    The ECB is expected to keep rates on hold. Some strategists
said there was an outside risk the euro could rebound slightly
if Draghi did not sound too downbeat about the euro zone's
    "The Spanish auction shows there is still demand (for its
debt) which is positive and a little bit surprising considering
what is happening in Italy," said Richard Falkenhall, currency
strategist at SEB. 
    "On the ECB, they will probably disappoint, because there
are some investors betting the ECB will have a dovish tone which
may not happen and you could see a small euro-positive
reaction," he said, adding the euro could rise to $1.31 but not
much higher.
    The euro was up 0.4 percent at $1.3013. But it stayed
susceptible to losses and could retest last week's near
three-month low of $1.2966, below which it could fall to
December's low of $1.2876. Resistance was cited at $1.3126, the
euro's 100-day moving average.
    It is likely to struggle to make decisive gains against the
dollar given investors are snapping up the U.S. currency on the
back of good U.S. economic data and bets the Federal Reserve may
halt its asset purchase programme towards the end of the year.
    In contrast, the ECB is likely to downgrade its staff
projections for inflation and growth, all of which could see
interest rate differentials move in favour of the dollar.
    "On balance we are negative euro and it will see a steady
grind lower because of the elevated level of risk," said Adam
Cole, global head of FX strategy at RBC Capital Markets. 
    Analysts at Morgan Stanley said they expect the euro to
decline towards the $1.2880/50 area initially and then towards
their $1.2660 target.
    The dollar index last stood at 82.425, having risen
to 82.604, its highest since Aug. 20, in late Wednesday trade.
It has rallied more than 4 percent from this year's trough of
78.918 plumbed on Feb. 1. 
    Better-than-expected U.S. jobs data on Wednesday boosted the
dollar and indicated that Friday's U.S. non-farm payrolls will
surprise on the upside and the Fed might be the first major
central bank to pull the plug on stimulus, while the others
continue to ease. 
    Against the yen, the dollar was up 0.1 percent at 94.16
, moving closer to a 33-month peak of 94.77 reached on
Feb. 25. 
    Earlier on Thursday, the Bank of Japan stayed on hold, but
the yen weakened against the dollar on expectations of
aggressive policy easing in the future. Some strategists have
revised their forecasts to show sustained yen weakness. 
    UBS have changed their end-2013 forecast for the dollar to
100 yen from their earlier prediction of 85 yen.  
   The BOJ meeting on Thursday was the last policy meeting
chaired by outgoing Governor Masaaki Shirakawa, with markets
expecting fresh stimulus measures at one of its meetings in
April under a new governor. 
    Sterling meanwhile fell to a 2-1/2-year low of
$1.4965, as some in the market positioned for more stimulus from
the Bank of England as early as on Thursday as the British
economy faces the threat of a triple-dip recession.

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