FOREX-Euro at 4-week high vs dollar, ECB seen holding rates

Thu Jun 6, 2013 4:55am EDT

Related Topics

* ECB seen standing pat on rates

* Investors to take cue from Draghi's press conference

* Dlr-yen up slightly after 1 pct fall a day earlier

By Anirban Nag

LONDON, June 6 (Reuters) - The euro rose to a four-week high against the dollar on Thursday ahead of the end of a European Central Bank meeting expected to keep interest rates on hold.

Investors had been building positions against the euro on speculation that the ECB could lower its already low main refinancing rate and take its deposit rate to below zero, if the economy deteriorated.

But latest economic data has shown some signs of stabilisation, giving the ECB room to hold off from lowering rates, for now.

While that was helping the euro, gains were expected to be capped by caution from ECB President Mario Draghi about a sustained recovery. Draghi, who addresses a press conference at 1230 GMT after the ECB announces its decision at 1145 GMT, is likely to keep the option of more policy action on the table.

The euro rose to $1.3131, its highest level since May 9 and up 0.3 percent on the day. Immediate resistance is seen around $1.3140, the 76.4 percent retracement of its May 1-17 fall with stop-loss buy orders above $1.3150. The euro was also up 0.4 percent against the yen at 130.18 yen.

"The question is how far can the euro go and to my mind, if Draghi rules out negative interest rates, we could see the euro higher," said Peter Kinsella, currency strategist at Commerzbank.

"But, we think Draghi will try and talk down the euro and hence see any bounce to $1.32 as a selling opportunity."

The euro's rise dragged the dollar index to a four-week low of 82.394.

The dollar recouped some of its lost ground against the yen, having lost 1 percent a day earlier. Traders said the pair continued to track sharp swings in Tokyo shares.

The U.S. currency was at 99.25 yen, up 0.2 percent, but still not far from a four-week low of 98.86 yen, struck earlier in the session.

Dollar-yen has been tracking the Nikkei stock average over its steep decline in the past two weeks, as foreign investors wind back the hedges they had put on for protection from the yen's slide between November and May.

"Even if the Japanese stock market goes back up it will likely stay volatile and that will make the yen hard to sell, regardless of whether the market is bullish on the dollar," said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

The dollar's fall on Wednesday was exacerbated after a closely watched report showed hiring by U.S. firms was sluggish in May. That raised the risk that Friday's non-farm payrolls could disappoint and lessen the likelihood that the Federal Reserve will taper its easing programme early.

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