FOREX-Euro advances on better money market conditions, China data

Mon Dec 9, 2013 4:32pm EST

Related Topics

* Euro hits six-week highs vs dollar, five-year peak on yen
    * Euro supported by higher money market rates in euro zone
    * Dollar falls to 1-1/2-month low vs Swiss franc
    * Fed officials address taper talk ahead of meeting

    By Gertrude Chavez-Dreyfuss and Daniel Bases
    NEW YORK, Dec 9 (Reuters) - The euro hit a six-week high
versus the dollar and a five-year peak against the yen on
Monday, helped by tighter money market conditions in the euro
zone and strong trade numbers from China, which boosted investor
tolerance for riskier currencies.
    Europe's common currency remained resilient despite Friday's
better-than-expected U.S. nonfarm payrolls report, tepid
economic conditions in the euro zone and constant reiteration by
European monetary officials that interest rates would remain low
for some time.
    The euro is within striking distance of its year highs
reached in late October when the currency hit $1.3832.
    Over the weekend, China reported its exports came in well
above forecast in November, rising 12.7 percent from a year
earlier, while imports rose 5.3 percent. 
    "The strong labor data out of the U.S. and the robust trade
balance numbers from China suggest that global growth may be
better than the consensus view," said Boris Schlossberg,
managing director of FX strategy at BK Asset Management in New
York.
    "Under that scenario, both the U.S. and China could act as
locomotives for global GDP expansion and help lift the euro zone
out of its funk." 
    The euro traded at $1.3739, up 0.26 percent, having been as
high as $1.3745. Short-term interest rates in the euro
zone money market edged up with the chances of more easing by
the European Central Bank looking slim for now, underpinning the
euro. 
    The euro peaked at 141.93 yen, a five-year high, up 0.62
percent on the day. Investors kept the euro near its highs, 
ignoring a drop in euro zone sentiment and a fall in German
industrial output.  
    Since Friday's U.S. labor market report, investors have been
selling the dollar and yen, according to CitiFX's flows report.
The bank's clients have been buying the euro, with Citi
expecting more demand from hedge funds.
    The euro's strength pushed the dollar index to a six
week low of 80.121. It traded off 0.22 percent at 80.140 in
afternoon New York trade on Monday.
    The dollar fell to a 1-1/2-month low against the safe-haven
Swiss franc. The greenback rose 0.39 percent to 103.28
yen, building on Friday's 1.1 percent rally, and now sits
just below a six-month peak of 103.38 hit on Tuesday.
    The dollar tracked lower U.S. Treasury yields, which failed
to get traction from the U.S. payrolls number. U.S. employers
hired more workers than expected in November, driving the
jobless rate to a five-year low of 7.0 percent.
    But the jobs number was not robust enough to lead markets to
price in an immediate withdrawal of monetary stimulus by the
Federal Reserve. As a result, U.S. Treasury yields fell,
dragging the dollar down.
    Still, Camilla Sutton, chief currency strategist at
ScotiaBank in Toronto, said the overall U.S. economic
environment suggests that tapering is likely to happen in
January.
    "The Fed will work hard to push out expectations for higher
rates as it tapers and there is a risk of a decision to lower
the unemployment threshold," said Sutton. "In this environment
we would expect the U.S. dollar to be broadly stronger."
    A Reuters poll showed Wall Street firms expect the Fed to
start reducing its massive bond-buying program no later than
March, though only a handful of firms expect action as early as
next week. 
    
    FED SPEAKERS
    St. Louis Fed President James Bullard said Monday the Fed
could slightly reduce its monthly bond purchases this month in
reaction to signs of an improved labor market.
    Dallas Federal Reserve Bank President Richard Fisher said
the U.S. central bank should start to trim its massive
bond-buying program next week. Richmond Fed President Jeffrey
Lacker said further monetary stimulus is unlikely to do much to
help the U.S. economy and the risks of pressing ahead with the
policy outweigh the benefits. 
    Of those three, only Bullard is a voting member of the
policy-setting Federal Open Market Committee this year. He
recently said a strong payrolls number would raise the chance of
tapering in December.
    "With the meeting now a week away, after the September
experience where the seeming guidance going into the meeting
turned out to have led the market somewhat astray, I think there
is some cautiousness about attaching too much significance to
what some of these comments might mean for the policy outcome
next week," said Bob Lynch, currency strategist at HSBC in New
York.
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