August 1, 2012 / 1:15 PM / 5 years ago

FOREX-Euro steady as investors await Fed and ECB decisions

* Focus on whether ECB acts after Draghi's pledge
    * Investors see risk of disappointment
    * Aussie hits four-month high versus U.S. dollar
    * Fed seen in wait-and-see mode


    NEW YORK, Aug 1 (Reuters) - The euro was little changed
against the dollar on Wednesday as investors held off making
large bets ahead of impending monetary policy decisions in the
United States and the euro zone. 
    Investors are gearing up for possible European Central Bank
action on Thursday to tackle the region's debt crisis but they
are also mindful of the risk of disappointment.
    Before then, a U.S. Federal Reserve policy decision is due
on Wednesday. Analysts expect the Fed to stop short of
announcing aggressive measures to tackle a weak economy but
nevertheless to signal it is ready to act. 
    The dollar got a boost against both the yen and the euro
after data showed the U.S. private sector added more jobs than
expected in July but the focus remained the central bank
decisions..
    "With the Fed meeting today, the ECB and BoE tomorrow, and
the BoJ next week, market participants are gearing for policy
action or at the very least accommodative rhetoric within the
upcoming press conferences and policy statements," said Eric
Theoret, currency strategist at Scotiabank in Toronto. 
    The euro was flat at $1.2301, under some pressure
after German Bundesbank President Jens Weidmann said governments
overestimated the ECB's capacities and placed too many demands
on it.
    The single currency was supported above Monday's low of
$1.2225 but remained below a three-week peak of $1.2390 struck
after comments from ECB President Mario Draghi last week, which
raised expectations the ECB might resume its bond purchase
program, lowering borrowing costs for Spain and Italy. 
    Draghi last week boosted the euro and riskier assets by
pledging to do everything necessary to preserve the euro.    
Analysts said this made many wary of taking a strong position
and was likely to keep the euro trapped in a tight range against
the dollar.
    Investors were wary of stiff German opposition to either a
resumption of ECB bond-buying or granting a banking license to
the euro zone's rescue fund to increase its firepower.
    Many analysts and traders say the impact of any ECB action
would in any case be temporary without a sustainable economic
recovery in battered southern Europe. 
    Weak economic growth and record high joblessness across the
euro zone is likely to keep alive chances of more interest rate
cuts by the ECB in the near term, keeping sentiment towards the
euro bearish.
    Euro zone data painted a gloomy picture for the region, with
business surveys on Wednesday showing the region's manufacturing
sector contracted for an 11th successive month. 
        
    FOMC AWAITED
    The dollar was up 0.1 percent against the yen at 78.20 yen
 after the U.S. private sector jobs report. 
    "ADP has a poor correlation with nonfarm payrolls but that
won't stop positive anticipation for Friday's job report based
on today's better-than-expected number," said Joseph Trevisani,
chief market strategist at Worldwide Markets, Woodcliff Lake in
New Jersey.
    But the main highlight in U.S. trading will be the Fed's
statement where it is likely to mark down expectations for
growth but hold back from further easing. 
    "We think if the Fed indicates a wait-and-see approach it
could lead to some disappointment and would weigh on the
euro/dollar," said Adam Myers, senior currency strategist at
Credit Agricole in London.
    He added that even if the Fed surprised and announced fresh
measures, likely disappointment from the ECB on Thursday would
cap any gains in the euro.
    Earlier, the dollar hit a two-month low against the yen of
77.91 yen, with traders saying it may have been influenced by
month-end flows. 
    The growth-linked Australian dollar shrugged off a
weak Chinese official factory purchasing managers' index to rise
to a four-month high against the U.S. dollar It was last at
$1.0518, up 0.2 percent, with traders citing option barriers at
$1.0550. 
    Analysts said growth-linked currencies are likely to be
supported by diversification flows from central banks.

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