FOREX-Euro gains as ECB's Weidmann dismisses intervention talk

Mon Feb 11, 2013 12:25pm EST

Related Topics

* Euro rises vs dollar and crosses in choppy trade

* Vulnerable to "currency war" talk

* Concerns about Cyprus, Spain, Italy also weigh on euro

* Investors await BOJ, euro zone GDP and G20 meetings

By Julie Haviv

NEW YORK, Feb 11 (Reuters) - The euro rose against the dollar and yen on Monday after incurring heavy losses for three straight days as a European Central Bank policymaker dismissed talk of intervening to weaken the shared currency.

Discussions about an overvaluation of the euro are simply a diversion from governments' task of sorting out their economies, Jens Weidmann said, resisting political pressure to weaken the currency.

The euro, which fell nearly 1.7 percent against the greenback during the previous three sessions, was buoyed by investors seeking to buy at lower levels, but gains accelerated after Weidmann's comments.

The single currency could turn lower if a Eurogroup of euro zone finance ministers meeting on Monday and a G20 meeting later in the week exacerbate tensions over whether some countries are deliberately trying to weaken their currencies to boost exports.

"The euro is in a consolidation mode right now, but the Eurogroup meeting should set the temperature for the rest of the week," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.

"We could see further consolidation trading this week, particularly in the yen, with the market wary of a potential pushback by officials against Japan, but if no pushback materializes, the yen selling should continue," he said.

The Group of Seven nations are considering issuing a statement this week reaffirming their commitment to "market-determined" exchange rates in response to heating rhetoric about a currency war, two G20 officials said on Monday.

France insisted on Monday that euro zone finance officials should discuss the rising strength of the euro, but several ministers played down the issue and the G7 was expected to call for "market-determined" exchange rates.

The euro last traded up 0.4 percent at $1.3414 after hitting a session high of $1.3427.

Against the yen, the euro rose 1.2 percent to 125.34 yen after hitting a session peak of 125.44. That is above Friday's one-week low of 123.43, but still some way off the 34-month high of 127.71 yen hit on Feb. 6.

The euro sold off last week after European Central Bank President Mario Draghi kept alive expectations of rate cuts and said the bank would monitor the economic impact of the strengthening currency.

The U.S. Federal Reserve and Bank of Japan are expanding their balance sheets rapidly by printing money, while the ECB's balance sheet is tightening, partly due to banks paying back early cheap money the central bank doled out last year.

"The G20 meeting in Moscow this week seems certain to focus on 'currency wars' but beyond a bland call for countries not to engage in competitive devaluations it's hard to see what concrete steps can be taken at this stage," said Kit Juckes, fx strategist at Societe Generale in London.

"The 'currency war' is a product of easy Fed policy, and the U.S. is winning comfortably," he said. "Japan's response can't be criticised in the context of the deflation they have been stuck in, and Europe cannot agree on a common position."

Some remain uneasy about the euro due to political and fiscal uncertainty as well as last month's steep ascent.

Concerns about the terms of a bailout for Cyprus, which will be high on the Eurogroup's agenda, could cap the euro's gains, analysts said.

There are also growing worries about a political scandal in Spain, and about Italy in the run-up to the Feb. 24-25 election.

The euro appreciated 2.9 percent against the dollar in January, its best monthly performance since Oct. 2011. So far this month, however, the euro has depreciated 1.2 percent.

BANK OF JAPAN

Much of Asia was shut for the Lunar New Year holidays keeping volumes on the lower side. Traders braced for more volatility later in the week with U.S. retail sales, European growth data, the G20 meeting in Moscow and a Bank of Japan policy decision.

The BOJ is expected to keep monetary policy steady this week. In the past few months, the yen has slumped as Prime Minister Shinzo Abe put intense pressure on the central bank to take aggressive easing measures to revive the economy.

The yen's weakness is likely to persist as it is widely expected the new BOJ chief, who will take over next month, is likely to be someone who is amenable to Abe's policy stance.

The dollar last traded up 0.8 percent at 93.38 yen , but below a 33-month high of 94.06 yen hit Wednesday, according to Reuters data.

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