* Euro pares gains despite upbeat ZEW survey
* Dollar marginally up, all eyes on Fed decision
* Swedish crown rises after widely-expected rate cut
By Laurence Fletcher
LONDON, Dec 17 The euro failed to hold onto
gains after an upbeat German sentiment survey as investors cut
risk ahead of this week's key decision on bond-buying by the
U.S. Federal Reserve.
The euro, which reached a six-week high against the dollar
last week, gave back earlier gains to trade 0.1 percent
lower at $1.3752.
The fall came despite a much better than expected reading
from the German ZEW economic sentiment survey, following on from
an upbeat German PMI survey on Monday.
Investors are unwilling to take large bets as the U.S.
central bank begins its latest two-day policy meeting on
Tuesday, fearing markets could suddenly move against them if
they are positioned incorrectly.
The odds on the Fed starting to taper its huge bond-buying
programme this month or next have shortened after a run of
upbeat data, including strong November industrial production,
although a majority of economists polled by Reuters still expect
the change to come in March.
"It doesn't make sense to be too long risk going into the
(Fed) ... meeting," said Peter Kinsella, a currency strategist
at Commerzbank, who also pointed to low market liquidity.
He said he does not expect tapering to begin this week but
added: "The question is what guidance the Fed comes out with ...
What it says tomorrow might be the real, real important bit."
Carl Hammer, chief currency strategist at SEB in Stockholm,
said he expects the Fed to start tapering by $5-10 billion and
to lower the unemployment threshold to 6 percent.
The euro fell 0.3 percent against the Swedish crown to
9.0257 crowns after the Riksbank cut the repo rate as widely
expected, with some investors betting the crown's weakness is
now largely over.
The single currency's softness on Tuesday comes after a
strong rally since the summer as banks repay cheap European
Central Bank loans, which has tightened money markets.
Another factor driving euro strength this year has been
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 SEB's Hammer.
The Australian dollar fell 0.3 percent to $0.8921,
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.