FOREX-Euro steadies vs dollar ahead of Greek vote
15/06/2012 at 19:18
Updates prices, adds quotes, changes byline * Central banks' liquidity pledge reassures investors * Soft U.S. data keeps speculation of Fed easing alive * Options reflect high level of euro uncertainty * Yen gains broadly after BOJ stands pat By Gertrude Chavez-Dreyfuss NEW YORK, June 15 Reuters - The euro rose slightly against the dollar, underpinned by expectations that global central banks will act to prevent any fallout arising after Sunday's crucial Greek electionThe dollar, meanwhile, slumped against the yen as Friday's data reflected weakness in the U.S. economy, raising the prospect the U.S. Federal Reserve may resort to further monetary easing
The Federal Open Market Committee, the Fed's policy-making arm, will meet next Tuesday and Wednesday
But Sunday's Greek election has been the focus this week
Central banks around the world are bracing for action to counter any turmoil from Greece's election, with the European Central Bank hinting at an interest rate cut and Britain set to open its coffers
A coordinated action is likely to support risk appetite and provide relief to the euro, although any bounce could prove temporary given Spain's elevated borrowing costs and the risk of the debt crisis spreading to Italy, the euro zone's third-largest economy
"My main thesis continues to be that policy makers will step in to mitigate downside equity and financial market contagion risks," said Andy Busch, global currency and public policy strategist at BMO Capital Markets in Chicago
"This is precisely what has happened over the last two days and will certainly continue into next week." In early afternoon trading, the euro
"Leading into Sunday's Greek election, some traders covered short positions, but others appear to be building longs on the belief that regardless of the outcome there is more downside than upside price in, leaving the scales unbalanced in favor of short-term long euro positioning," said Camilla Sutton, chief currency strategist, at Scotia Capital in Toronto
Traders said the euro had scope to post short-term gains if Greece's pro-bailout parties manage to win a majority in Sunday's election. In a scenario where the far-left anti-bailout parties win, the euro could drop toward near two-year lows of $1.2286 struck earlier this month
< Other stories on euro zone crisis: Breakingviews-Isolating Germany won't work: Euro zone crisis in graphics: For full multimedia coverage: > For the week, however, the euro was slightly down 0.1 percent. Investors this week slashed hefty bearish positions after hitting record highs last week
Uncertainty about the euro was reflected in the options market, where both one-week
Spanish and Italian bond yields eased on Friday but remained near levels considered unsustainable to borrow from capital markets. The deteriorating situation in the euro zone has galvanized policymakers to consider taking action ahead of a G20 summit next week
ECB President Mario Draghi said on Friday the bank was ready to support euro zone banks, should it be required, while Bank of Japan Governor Masaaki Shirakawa said central banks can offer liquidity to calm markets in case the Greek elections heighten tension
In the United States, data on manufacturing output showed a decline in May for the second time in three months, while a gauge of factory activity in New York state plunged this month, worrisome signs the American economy is cooling
Separate data showed U.S. consumer sentiment falling to a six-month low in early June
"U.S. statistics over the past two weeks have made a third quantitative easing program far more likely," said Joseph Trevisani, chief market strategist, at WorldWide Markets in Woodcliff Lake, New Jersey. "There is nothing quite as effective in devaluing the dollar as the Federal Reserve printing press." The dollar and euro also came under pressure against the yen after the Bank of Japan announced no change in its monetary policy. Analysts said some investors may have positioned for a more dovish stance and were buying back the yen as a result
The euro
Additional reporting by Julie Haviv; Editing by Padraic Cassidy gertrude.chavez@thomsonreuters.com+1-646-223-6322, Reuters Messaging: gertrude.chavez.reuters.com@reuters.net Currency bid prices at 1356 EDT 1756 GMT. All data taken from Reuters calculated from the levels at 1630 EDT in the previous New York session: Last US Close Pct YTD Pct 2011 June 14 Change Change Close --------------------------------------------------------------- Euro/dlr
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Keywords: MARKETS FOREX