* Euro up 0.1 pct vs dollar, yen before ZEW survey
* Dollar soft before Fed decision on Wednesday
* Swedish crown falls after rate cut, lower rate path
By Laurence Fletcher
LONDON, Dec 17 The euro rose against the dollar
on Tuesday as investors anticipated an improved reading in
German economic sentiment while uncertainty about a Federal
Reserve decision on bond-buying kept the dollar in tight ranges.
A firmer reading from the German ZEW economic sentiment
survey, due at 1000 GMT, will likely support the euro, while a
lower-than-forecast number could see it give up recent gains
. On Monday a German PMI survey beat expectations.
The euro rose 0.1 percent against the dollar to
$1.3772. The common currency also stayed within reach of a
five-year peak against the yen, rising about 0.1 percent to
The euro also rose against the Swedish crown after the
Riksbank cut the repo rate as expected. The crown
fell to a session low of 9.0791 per euro in high volumes after
the central bank struck a dovish note by lowering the rate path.
The single currency has shrugged off some poor recent
economic data - particularly in France - to surprise many
analysts and move higher since the summer.
A key driver has been tighter money markets, as banks repay
cheap European Central Bank loans. Liquidity usually tightens
towards the end of the year anyway, when banks hold off from
lending to each other.
This year, another factor driving euro strength is European
banks repatriating funds to shore up their capital bases before
an ECB Asset Quality Review (AQR). EU banks reduced their assets
by 817 billion euros between December 2011 and June 2013,
according to the European Banking Authority.
"(Euro/dollar) above $1.35 is not fundamentally justified if
you look at what's happening in the U.S. and Europe. But
underlying flows are euro-positive," said Carl Hammer, chief
currency strategist at SEB in Stockholm.
"Obviously everyone is waiting for the Fed decision. We are
looking for the Fed to initiate cautious tapering," he said. He
expects bond-buying to be reduced by $5-10 billion and the
unemployment threshold - when the Fed would consider raising
interest rates - to be lowered to 6 percent.
The Fed begins its latest two-day policy meeting on Tuesday.
A majority of economists polled by Reuters expect it to taper
its huge bond-buying programme in March, although the odds on a
move this month or next have shortened after a run of upbeat
The dollar, which hit a five-year high of 103.925 yen on
Friday, was down marginally at 102.97 yen. There was talk
among traders of options expiring at the 103 yen level, which
could help keep the Japanese currency at these levels.
U.S. economic data continues to suggest improving prospects,
with industrial production posting its biggest increase in a
year in November, finally pushing industrial output above its
"Some of the momentum that we saw in some currencies, like
dollar/yen, euro, sterling, it seems to have faded at the
moment, which could be partly going into year-end with less
liquidity and some profit-taking, which could be limiting
moves," said Mitul Kotecha, head of global foreign exchange
strategy for Credit Agricole in Hong Kong.
The Australian dollar fell 0.2 percent to $0.8934,
heading back towards the more-than-three-month low it hit on
Friday, after the release of the minutes of the Reserve Bank of
Australia's Dec. 3 policy meeting. The RBA said the Aussie is
still uncomfortably high despite the fact it has weakened
noticeably over the past month.
Australia's government has also abandoned any intentions of
returning to a budget surplus and predicted deficits for the
next decade without spending cuts.