March 5, 2013 / 6:21 AM / 5 years ago

Euro lags, commodity currencies better bid

SYDNEY (Reuters) - The euro struggled to gain ground on Wednesday with investors sidelined ahead of the European Central Bank policy meeting, but commodity currencies made the most of improved risk appetite that saw the Dow Jones hit a record-closing high.

The better mood was fuelled by the growing prospect of further easing by the ECB, Bank of England and Bank of Japan, along with the Federal Reserve’s commitment to bond buying.

“That’s fantastic testament to the power of easy money, in the face of doubts about the U.S. economy now that fiscal spending is being cut back,” said Kit Juckes, strategist at Societe Generale.

“Not to mention the power of easy money to overcome political uncertainty in Italy and recession throughout Europe,”

The Australian dollar was a big beneficiary rising to $1.0254, and well away from an eight-month trough of $1.0116 plumbed on Monday. The New Zealand dollar was at $0.8313, up from this week’s trough of $0.8193.

The euro and sterling lagged, with investors taking a more cautious stance in case the ECB and BoE do surprise with fresh stimulus measures at their respective meetings on Thursday.

The euro edged up to $1.3047, but was still near Friday’s trough of $1.2966. Against the yen, the common currency was steady around 121.80.

A man holds Japanese 10,000 Yen ($121) bank notes in front of a bank in Tokyo November 22, 2012. REUTERS/Kim Kyung-Hoon

Sterling was a touch firmer at $1.5133, having risen as high as $1.5200 on Tuesday. However, it stayed within striking distance of a 2-1/2 year low around $1.4985 set Friday.

The moves in currencies came against a backdrop of improved risk appetite as stocks in Europe and the United States rallied, driving the Dow Jones to new heights.

Signs of a strengthening U.S. economy, continued support from the Fed, and plans for record government spending to sustain growth in China seemed to have given investors fresh confidence to take risk.

A money suitcase (Geldkoffer) containing chocolate euro notes is pictured outside the headquarters of Germany's federal bank Deutsche Bundesbank in this picture illustration taken in Frankfurt February 4, 2013. REUTERS/Kai Pfaffenbach

Also in focus, the Bank of Japan kicks off its two-day meeting. The central bank is expected to hold fire this week but a coming leadership change should inject fresh blood determined to defeat deflation.

Investors have sold the yen in anticipation of aggressive policy action, although they have recently taken a step back. The dollar, which hit a 33-month high of 94.77 yen on February 25, last stood at 93.36.

There is scant economic news in Asia on Wednesday, with Australia’s fourth-quarter gross domestic product at 0030 GMT the only highlight.

Analysts expect the economy to have grown 0.6 percent on the quarter, taking year-on-year growth to 3.0 percent, still well ahead of most other developed nations.

Traders said any disappointment could see the Aussie dollar come under a bit of pressure. Immediate support is seen just under $1.0200, followed by Monday’s trough of $1.0116.

Editing by Wayne Cole

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