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FOREX-Euro steady as market ponders timing of Spain bailout
October 3, 2012 / 11:16 AM / in 5 years

FOREX-Euro steady as market ponders timing of Spain bailout

* Euro trades within range vs dollar
    * Single currency expected to hold above $1.28
    * Australian, Canadian dollars fall to 4-week lows

    By Jessica Mortimer
    LONDON, Oct 3 (Reuters) - The euro steadied against the
dollar on Wednesday, underpinned by the belief that Spain will
eventually request financial aid, a move which would prompt the
European Central Bank to buy Spanish bonds and boost the euro.
    It remains uncertain when Spain will make the move, however,
after Prime Minister Mariano Rajoy on Tuesday quashed
speculation the country could apply for a bailout as soon as
this weekend.    
    The single currency was flat at $1.2924, staying well
above the three-week low of $1.28035 hit on Monday and with the
potential to test Tuesday's peak of $1.2968.
    "We expect Spain to apply for aid and relatively soon,
within the next one to three weeks ... This will be a further
relief for the euro but it's still not solving the underlying
problems of the euro zone," said Richard Falkenhall, currency
strategist at SEB in Stockholm.
    "It's reasonable to see people cutting back on short euro
positions, but it's hard to believe that medium to long-term
investors would be setting long euro positions."
    He said a Spanish bailout request would push the euro above
$1.30, perhaps towards $1.35 but not further.
    A euro zone purchasing managers' survey on services and
retail sales data highlighted concerns about the region's very
weak economy. The numbers did not dent the euro as they were
slightly less bad than some in the market had feared.
  
    The euro's movements are likely to be limited before
Thursday's European Central Bank meeting and U.S. jobs data on
Friday, which could trap the euro in a range between $1.28 and
$1.2968, strategists said.
    "All eyes at the moment are on non-farm payrolls on Friday.
If we get a reasonably good number that will be risk on across
the board and euro will grind higher. So from a short-term
trading perspective the strategy should be buy on dips," said
Peter Kinsella, currency strategist at Commerzbank.
    U.S. private payrolls figures are due at 1215 GMT and may
give a hint of how the non-farm numbers will look. 
    Despite continuing weak euro zone data, few market players
are expecting the ECB to cut rates from an already record low of
0.75 percent on Thursday. 
    The common currency was also helped by Moody's saying it
would announce the results of its review of Spain's sovereign
debt rating some time this month, wrongfooting euro bears who
had expected an imminent downgrade.
    Spain stands to lose its investment grade rating if Moody's
decides on a downgrade. 
    
    GROWTH-LINKED CURRENCIES STRUGGLE
    The Australian dollar fell broadly and other commodity- and
growth-linked currencies like the Canadian dollar followed suit
after Australia posted its biggest trade deficit in 3-1/2 years
as falling prices for iron ore and coal dented export earnings.
 
    The euro rose to a 3-1/2 month high of A$1.2664,
while the Australian dollar also fell against the U.S. currency
to US$1.0198, its lowest level since Sept. 6.
    Against the Canadian dollar, the U.S. dollar also hit a near
four-week high of C$0.9878.         
    The Aussie was also weighed down by expectations that
domestic interest rates will be cut further, after the Reserve
Bank of Australia on Tuesday cut its cash rate by 25 basis
points to 3.25 percent, the lowest level in three years.
    But further falls for the Australian currency could be
limited as the U.S. Federal Reserve and European Central Bank
are busy trying to stimulate their economies as well,
diminishing the allure of both the dollar and euro. 
    Against the yen the dollar rose to a near two-week high of
78.31 yen. Traders said they saw dollar buying by U.S.
corporates.

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