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FOREX-U.S. dollar falls as Fed, Moody's weigh; euro eyes German ruling
September 11, 2012 / 5:21 PM / 5 years ago

FOREX-U.S. dollar falls as Fed, Moody's weigh; euro eyes German ruling

* Speculation of Fed easing weighs broadly on dollar
    * Moody's warning on U.S. debt hurts dollar
    * Euro at 4-month high, Canadian dollar at 1-year peak

    By Julie Haviv
    NEW YORK, Sept 11 (Reuters) - The U.S. dollar fell against
most major currencies on Tuesday on expectations the Federal
Reserve will soon unveil new economic stimulus measures and
losses accelerated after Moody's Investors Service raised fears
about a credit rating downgrade of the United States.
    Moody's said the U.S. could lose its triple-A debt rating if
next year's government budget talks do not result in a lower
debt to GDP ratio. 
    The euro also hit a four-month high on expectations a German
constitutional court will approve the euro zone bailout fund, or
ESM, fueling further optimism about a resolution of the region's
debt crisis following the European Central Bank's decision last
week to buy bonds from highly indebted countries. 
    "That just removes the uncertainty about the bailout fund
which is euro-positive and the consensus now is that the German
court will back the fund without incident," said Brian Kim,
currency strategist, at RBS Securities in Stamford, Connecticut.
    The euro last traded at $1.2864, up 0.8 percent on
the day, after earlier hitting a peak of $1.2871, its highest
since May 14 after it rose above its 200-day moving average
around $1.2834. 
    The euro, which has recovered strongly since hitting a
two-year low of $1.2042 in late July, still faces the risk
Germany's constitutional court could still surprise investors by
rejecting the European Stability Mechanism, Europe's new bailout
fund, in a ruling on Wednesday. 
    Such a decision would threaten European Central Bank plans
to lower the borrowing costs of Spain and Italy under a program
announced late last week which gave the euro a lift. 
    The German court said it would not postpone Wednesday's
long-awaited decision despite a new challenge by a eurosceptic
    Market participants will also be watchful of news from the
Netherlands which holds an election on Wednesday.
    Analysts said sentiment toward the euro was broadly positive
but the currency was vulnerable to developments in Spain, which
is expected to ask for a bailout, and in Greece, whose foreign
lenders rejected parts of a government austerity package. 
    "Spain and Italy are huge problems that are far from solved,
and if the worst comes and the (bailout funds) are tapped and
the ECB starts purchasing 'unlimited' quantities, ... the euro
will devalue, similar to the dollar when the Fed initially
started its quantitative easing program," said Brad Bechtel,
managing director at Faros Trading in Stamford, Connecticut. 

    Weak U.S. jobs data last week raised expectations the Fed
will launch another asset purchase program. That would weigh on
the dollar against higher-yielding currencies.
    In a Reuters poll taken after Friday's weaker-than-expected
payrolls report, economists saw a 60 percent chance of the Fed
embarking on quantitative easing this week compared with 45
percent in a late August poll.
    The greenback last traded at 77.74 yen, its lowest in
more than three months. 
    Analysts said the Japanese authorities were likely to step
up threats to intervene in the currency market and the Bank of
Japan could ease policy further when it meets next week to
offset any impact from possible easing by the Fed.
    The growth-linked Canadian dollar rose to a
one-year high against the U.S. dollar, buoyed in part by the
Bank of Canada's tightening bias. The U.S. dollar was last down
0.6 percent at C$0.9718, according to Reuters data.

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