* Euro holds in range, outlook clouded by political risks
* Dutch auction sees reasonable demand
* Two-day FOMC meeting due to start later on Tuesday
By Nia Williams
LONDON, April 24 The euro edged higher against
the dollar on Tuesday after a debt sale in the Netherlands
produced solid results despite the Dutch government's collapse
in a crisis over budget cuts the previous day.
Political uncertainty over the growing prospect of a change
of leadership in France as well as the Dutch impasse weighed on
the single currency. Elsewhere in the euro zone, highly indebted
Spain's borrowing costs remained a worry for investors.
The Netherlands, one of the euro zone's few remaining
AAA-rated economies, sold 1.995 billion euros of two- and
25-year government bonds, roughly in the middle of its target
range, a day after Prime Minister Mark Rutte resigned.
The euro rose 0.2 percent to a session high on
Tuesday of $1.3184, paring losses from the previous day when
disappointing euro zone PMI data pushed it to a low of $1.3103,
and it last traded at $1.3162.
The currency, however, remains in a range roughly between
$1.30 and $1.33 which it has kept within since early April.
Traders cited talk of bids under $1.3110 and lower at $1.3070,
and offers from Middle Eastern investors at $1.3180.
"There has been more chat about the resilience of the euro
that's spooking some people out of playing it lower over the
short term, but there are some very significant risks ahead,"
said Derek Halpenny, European head of currency research at Bank
Ratings agency Moody's said the collapse of the Dutch
government after failing to agree on austerity cuts was
credit-negative, although it maintained the country's triple-A
rating. Fellow agency Fitch warned last week it
was on the verge of taking negative action on the rating.
Many investors were also concerned about events in France
where Socialist Francois Hollande - who has promised to
renegotiate a European budget pact - won the first round of
France's presidential poll on Sunday.
The second round of the French presidential election is on
May 6, the same day that Greece elects a new government, while
Ireland faces a referendum on the European Union fiscal compact
later in May.
"As we move into May and June we could see further
volatility and turmoil which we think will see the euro break
below $1.30," Halpenny said.
The U.S. Federal Reserve starts its two-day policy meeting
on Tuesday. While the bar has been set high for another round of
stimulus, the market will nonetheless be keeping a close eye on
policymakers given the still-fragile U.S. economic recovery.
Some analysts attributed the euro's recent resilience
against the dollar to a fall in Treasury yields on weaker
economic data, which has compressed the spread between the
10-year U.S. government bonds and their German equivalent.
The apparent inability of the common currency to break
either side of the range meant more consolidation was possible,
they said, although given the return of tension around debt
problems few were optimistic about the euro in the longer term.
"We expect euro/dollar to resume a weakening trend in coming
weeks, with a break of $1.30 opening up a trading target of
$1.25 within a 2-3 month horizon," said Jens Nordvig, global
head of FX strategy at Nomura Securities.
The Australian dollar hit a two-week low against the U.S.
dollar after soft inflation data fuelled expectations of
interest rate cuts by the Reserve Bank of Australia.
The Aussie was down 0.3 percent at US$1.0283. It
earlier fell to US$1.0247 on data showing Australian consumer
prices climbed less than expected last quarter while underlying
inflation posted the smallest rise in a decade.
The safe-haven yen was broadly steady, trading close to flat
against the U.S. dollar at 81.14 yen.