CORRECTED-FOREX-Euro gains as ECB'S Draghi more upbeat on economy

Thu May 3, 2012 11:26am EDT

Related Topics

* ECB's Draghi says inflation to stay above 2 pct in 2012
    * Draghi says outlook subject to downside risks
    * U.S. services sector growth slows in April

    By Gertrude Chavez-Dreyfuss	
    NEW YORK, May 3 (Reuters) - The euro rose against the yen
and rallied from two-week lows versus the U.S. dollar on
Thursday after European Central Bank chief Mario Draghi gave a
more upbeat assessment of the euro zone economy than expected,
reducing expectations for further monetary easing.	
    But gains in the euro could be short-lived ahead of
elections in France and Greece at the weekend. 	
    Draghi, in comments after the ECB kept rates unchanged at 1
percent, said the euro zone economy was likely to recover this
year, although the outlook remained vulnerable to downside
risks. He added that inflation was likely to remain above 2
percent this year..	
    "Mario Draghi surprised the currency market by assuming a
decidedly hawkish posture at the monthly ECB press conference
dismissing any speculation of an imminent rate cut or even an
additional LTRO (long-term refinancing operation)," said Boris
Schlossberg, director of GFT in Jersey City.	
    The euro hit session highs at $1.3180 after earlier
falling to two-week lows at $1.3097. It was last at $1.3155,
flat on the day.	
    Traders said investors holding short euro positions got
squeezed when Draghi failed to signal further easing or outline 
measures to boost what many believe was still a struggling euro
zone economy.	
    Markets have become increasingly concerned that the ECB's
no-action stance on Thursday could have negative consequences on
a euro zone economy that has been hit by a slew of poor economic
data not only from the smaller nations, but from the core
countries too.	
    Technical charts, however, showed that the euro was still in
a consolidation pattern. A breakout from $1.2994-$1.3282 range
is needed for a clearer near-term outlook. 	
    On the upside, a break of $1.3283 -- the high hit on May 1
-- will indicate that the consolidation from the Feb. 29 peak of
$1.3486 has completed and a rebound from this year's low of
$1.2624 is resuming, analysts said.	
    The euro also rose 0.3 percent against the yen to 105.67 yen
.	
    The euro zone common currency came under pressure earlier in
the European session when Spain sold 2.5 billion euros of three-
and five-year bonds to solid demand, but yields jumped compared
with previous auctions. 	
    It was the first test of market appetite for Spanish debt
since the country slipped into recession and had its credit
rating cut again.	
    The more immediate risk for the euro comes from the French
and Greek elections. Opinion polls showed socialist Francois
Hollande will be elected the next French president and history
suggests with that victory comes a left-wing parliament.
Analysts said that could be a negative for the euro.
. 	
    In Greece, surveys showed no clear winner emerging from the
elections, with the two main parties garnering barely enough
seats for a parliamentary majority. 	
    The dollar, meanwhile, rose 0.3 percent against the yen to
80.49 yen, earlier supported by a fall in weekly U.S.
jobless claims that eased concerns about the labor market
recovery.  	
    The greenback, however, pared gains versus the Japanese
currency after a survey showed growth in the U.S. services
sector slowed in April as new orders dropped.	
    The Institute for Supply Management reported that its
non-manufacturing index for April fell to 53.5 from 56.0 the
previous month. The April number was also lower than the
market's consensus for a reading of 55.5. 	
    Peter Buchanan, economist at CIBC World Markets in Toronto,
said the ISM report eroded some of the positive sentiment from
the earlier U.S. jobless claims data. "Although all the
components remain in the expansionary territory, today's
readings point potentially to a modest slowing in services
sector growth."
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