FOREX-Euro lifted by Bundesbank; US yield rise limits dollar losses

Mon Aug 19, 2013 2:29pm EDT

Related Topics

* Bundesbank comments help euro
    * U.S. Treasury yields help dollar contain losses vs euro
    * Fed minutes on Wednesday to shed light on U.S. tapering
plans
    * Dollar index stays above recent near two-month low

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Aug 19 (Reuters) - The euro rose to a two-week
high against the yen and edged higher versus the dollar on
Monday, boosted by comments from the Bundesbank which suggested
that the European Central Bank's low interest rate pledge last
month was not set in stone and would depend on the medium-term
outlook for inflation.
    In its August monthly report, the Bundesbank said the ECB's
forward guidance on low interest rates was "not an unconditional
commitment". The ECB in July committed to keep interest rates at
record lows for an "extended period". 
    The Bundesbank's statement pushed the euro to the day's
highs against the dollar at $1.3374.
    The German central bank was also optimistic about Germany's
growth. The country's expansion in the second quarter -- when it
grew at its fastest pace in more than a year -- likely returned
the economy to a more normal growth path, the Bundesbank said.
.
    The euro's gains, however, were limited by the rise in U.S.
10-year Treasury yields on Monday, which advanced to 2.90
percent, their highest in two years. Investors
looked ahead to Wednesday's release of the Federal Reserve's
minutes of the July meeting, which could strengthen the view
that the U.S. central bank could soon taper its bond-buying
program.
    "We've seen the Bundesbank comments support the euro earlier
in London, although it has come off since this morning due to
the back-up in Treasury yields," said Brian Kim, currency
strategist, at RBS Securities in Stamford, Connecticut.
    In early afternoon trading, the euro rose 0.1 percent to
$1.3314, within sight of the $1.3400 level it touched on
Aug. 8, the highest since June 19, according to Reuters data.
    Against the yen, the euro rose 0.3 percent to 130.37 yen
. It hit a peak of 131.03 yen, the euro's highest since
August 5.
    Andres Bergero, vice president and chief corporate trader at
Bank of the West in San Ramon, California, said the Bundesbank
is known to be hawkish when compared to other central banks in
the euro zone. But he noted that the euro rallied "possibly
because of a change of perception of the Bundesbank's stance."
    Inflation in the euro zone was last reported at 1.6 percent
in June, well below the ECB's 2 percent inflation target and
above the ECB's forecast of 1.4 percent in 2013. 
    Bergero said the euro's mid-June high of $1.3414 may provide
resistance for euro/dollar, and support is seen at around
$1.3180.
    Investors have also started to focus on the Fed's minutes
from its July 30-31 meeting, to be published on Wednesday. The
minutes could fuel expectations that the Fed will start reducing
its $85-billion per month bond purchase program. Such a move
could further boost U.S. Treasury yields, enhancing the
attractiveness of dollar-denominated assets.
    "It could just reinforce the view that the Fed is prepared
to begin tapering sooner rather than later," said Eric Viloria,
currency strategist at Forex.com in New York.
    "If the Fed does start to taper and other central banks
remain accommodative and may even pursue more easing, that is
going to be a positive for the U.S. dollar," he said.
    Uncertainty about the U.S. monetary policy outlook has
pressured the dollar in recent weeks, driving it to a near
two-month low.
    The dollar index was little changed on Monday, at
81.2201, still above a low of 80.868 plumbed on Aug. 8.
    Expectations of a scaling back of Fed stimulus have driven
U.S. benchmark yields to two-year highs. But the impact on the
dollar has been offset by the improving euro zone and UK
economies, which have underpinned the euro and sterling.
    Analysts said euro zone manufacturing and services activity
data due on Thursday could help the euro. 
    The latest data from the Commodity Futures Trading
Commission showed that currency speculators were bullish on the
euro for the second straight week which ended on Aug. 13.
 
    Against the yen, the dollar edged up 0.2 percent to
97.68 yen. Chartists said if the dollar breaks above the Aug. 15
peak of 98.64 yen, it could retest the August high of 99.94 yen.
    While U.S Treasury yields have risen more than 10 basis
points from last Friday's low to Monday's high, Japan government
bond (JGB) yields have inched up by only around 2.0
basis points.
    As a result, the U.S.-Japan bond spread "continues to widen
in favor of dollar/yen upside," strategists at UBS said.
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