FOREX-Euro extends gains versus dollar on Greek buyback

Tue Dec 4, 2012 6:06am EST

Related Topics

* Euro extends gains vs dollar after Greek bond buyback

* Dollar weakness persists across the board

* Deadlock on U.S. fiscal issue resolution weighs

* Yen weakness runs out of steam

By Anooja Debnath

LONDON, Dec 4 (Reuters) - The euro hit a fresh six-week high against the dollar on Tuesday, extending gains on better-than-expected terms for a Greek debt buyback and falling borrowing costs for indebted euro zone countries.

The euro had scope for more gains if yields on Spanish and Italian bonds drop further, analysts said. Concerns U.S. budget talks may be stalling also weighed on the dollar and helped push it to a one-month low against a basket of currencies.

The euro edged up 0.2 percent to $1.3083, its highest since Oct. 22, but stalled ahead of a reported options barrier at $1.3100.

If it breaks above $1.3100 traders said it could rise further as stop loss buy orders are triggered. Its next target would be the October high of $1.3140.

"We have had a general upward trend in euro/dollar for quite a while and people are looking at news in the euro zone like the debt buyback by Greece," said Ulrich Leuchtmann, head of FX research at Commerzbank.

Greece's buyback offer on Monday topped market expectations and improved its chances of cutting its ballooning debt and receiving long-delayed aid.

The dollar was hobbled by uncertainty over efforts to avert the U.S. "fiscal cliff".

The White House dismissed Republican proposals for steep spending cuts late on Monday, heightening concern that lawmakers will not reach a deal in time to avert $600 billion in automatic budget measures coming into effect in early 2013.

Despite the dollar's reputation as a refuge in times of uncertainty, traders and analysts said it had stayed weak because of positive developments in the euro zone.

The euro's rise helped push the dollar to a one-month low against a basket of currencies, with its index dropping to 79.725.

Spain's formal request on Monday for European funds to recapitalise its banking sector also supported the euro by pushing down Spanish and Italian bond yields as investors became more confident about buying euro zone debt.

Elsewhere, the Swiss franc weakened, extending Monday's falls when Switzerland's largest banks said they would charge for some franc deposits.

This pushed the euro to 1.21455 francs, its highest since mid-September.

YEN RESURGENT

The dollar shed about 0.3 percent to 81.98 yen, further from a 7-1/2 month high of 82.84 yen hit last month.

The yen's recent slide on prospects of further monetary easing by the Bank of Japan after a Dec. 16 election has stalled. Markets are waiting to see whether a new government, likely to be led the opposition Liberal Democratic Party, can implement policy changes proposed by LDP leader Shinzo Abe.

"The yen weakened because of Abe, but the short-term story is over," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

"Abe has opened up many issues for discussion, but it remains to be seen how many of them will come to pass."

The euro slipped about 0.1 percent to 107.17 yen, off Monday's seven-month high of 107.67 yen.

The Australian dollar extended gains after the Reserve Bank of Australia cut its main cash rate a quarter point to 3.0 percent on Tuesday. A cut had been widely priced in. It was last up 0.5 percent at $1.0472.

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