March 5, 2013 / 9:36 PM / 4 years ago

FOREX-Euro inches up vs dollar as Dow hits record; Aussie boosted

* Dow's record high, economic data boost risk sentiment
    * Investors still wary of ECB, Italy's political situation
    * Yen strengthens after BoJ confirmation hearings


    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 5 (Reuters) - The euro rose for a second
straight day against the dollar on Tuesday while commodity
currencies such as the Australian and New Zealand dollars gained
as risk sentiment improved after a major U.S. stock index surged
to all-time highs.
    The Dow Jones industrial average hit a record,
blowing past lifetime peaks last seen in October 2007, when the
world was heading toward the financial crisis. 
    "The dollar is still a function of risk sentiment. So when
you see the stock market rise, tangentially, that means a lower
dollar and stronger foreign currencies," said Tatjana Michel,
director of currency analysis at Charles Schwab in San
Francisco.
    Investors tend to buy riskier currencies such as the euro
and Australian dollar in times of increased appetite for risk.
    Greg Moore, currency strategist, at TD Securities in Toronto
pointed out, however, that the Dow's impact on the currency
market was not as strong as many had expected, adding that he
doesn't expect risk sentiment to continue driving currencies.
"We have moved away from that risk dynamic a few weeks ago and I
still think domestic developments would continue to drive
currencies going forward."
    Further lifting the mood in financial markets was a report
showing the pace of growth in the vast U.S. services sector last
month accelerated to its fastest rate in a year, helped by a
pick-up in new orders and demand for exports. [ID:nL1N0BWC1Y)
    The euro was last up 0.1 percent at $1.3047, near the
day's high of $1.3075. The Australian and New Zealand
dollars were also higher, up 0.5 percent and 0.4 percent
against the greenback to US$1.0249 and US$0.8309, respectively. 
    The euro earlier climbed to a session high after a euro zone
composite PMI survey came in at 47.9, marginally better than the
preliminary reading of 47.3. Euro zone retail
sales data also beat expectations and provided a slight boost to
the euro zone common currency. 
    The euro zone PMI remained well below the 50 mark dividing
growth from contraction, however, and dipped from the previous
month. 
    Early gains were capped as investors weighed the chances the
European Central Bank will cut interest rates this week. And as
the currency bloc's economy continues to falter despite
Tuesday's data, there is the possibility the ECB will ease
policy in the coming months if not this week.  
    "Whether the ECB cuts rates this Thursday will depend on its
 inflation outlook. We have seen a preliminary figure of 1.8
percent which is below the 2 percent level and that gives the
ECB some window to ease," said Schwab's Michel.
    "I personally think the ECB will wait for its inflation and
growth forecasts which it will publish a week later. I believe
the ECB will take this into account if it does decide to ease in
April."
    The euro has also been hurt by political concerns in Italy.
Last week's election left no group with a working majority in
parliament and that meant Italy could be inching closer towards
another election within months.    
    Valentin Marinov, head of European G10 FX strategy at Citi
in London, said investor uncertainty about Italy could escalate
if there is no government in place before the end of the month,
adding he expected the euro to target $1.28.
    
    YEN RISES
    The yen was up against the dollar after confirmation
hearings of the government's nominees for two Bank of Japan
deputy governor posts, which had been widely expected by the
market. 
    Analysts said the dollar's early drop against the yen was
mostly a reflection of market positioning as traders were
probably long dollar/yen going into Tuesday's confirmation
hearings.
    The Japanese government has signaled it wants the BoJ to
pursue aggressive monetary easing to stimulate the economy, a
stance that has weighed heavily on the yen since November. 
    The dollar was down 0.2 percent at 93.30 yen, falling
for a second straight day.
    Some strategists, however, said the dollar's uptrend 
against the yen remained intact and dips would provide a good
chance to buy the pair.
    "Overall, we continue to view near-term pull-backs into the
91.80 yen area as providing buying opportunities," analysts at
Morgan Stanley said in a note.

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