U.S Dollar takes a pause, Euro lifted by bailout
reuters.com, 22 February, 2010
Anirban Nag, 22 February 2010
The U.S. dollar slipped on Monday, as investors reassessed chances of a earlier-than-expected interest rate hike by the Federal Reserve while the euro was lifted by speculation of a quick bailout for Greece.
German weekly Der Spiegel reported on Saturday that Germany's finance ministry had prepared plans in which countries using the single currency would provide aid worth between 20 billion and 25 billion euros for debt-laden Greece.
The ministry refused to comment on the report.
The magazine report helped the euro start higher in Asia, with the single currency jumping to as high as $1.3641 from $1.3607 late on Friday, before selling by some investment banks saw it give up most of those gains, traders said.
The euro has lost nearly 5 percent against the dollar since the start of the year on concerns about the fiscal health of Greece and other euro zone countries intensified.
Currency speculators raised net euro short positions to a record high in the week ended February 16, and traders say any bounce in the single currency is merely positioning adjustments.
In contrast, long bets on the U.S. dollar rose to its highest levels since the week of September 23, 2008, according to the Commodity Futures Trading Commission released on Friday.
The dollar index .DXY eased to 80.55, after rallying to an eight-month high of 81.342 on Friday. Still, daily charts indicate a bullish outlook for the dollar with the 55-day moving average pushing above the 200-day moving average, indicating a "golden cross" has been established.
The next resistance for the dollar index is around 81.46, which is its June 8, 2009 high and then around 81.90, which is the 50 percent retracement of index's fall from 89.62 to 74.17 last year.
This week, all eyes will be on Fed chief Ben Bernanke's testimony in Congress on Wednesday and Thursday. Investors will be looking for clues on rates after the Fed surprised many by raising the discount rate last week.
"Bernanke's regular testimony to Congress is likely to be bullish because the Fed has surprised markets with a quicker than expected lift in the discount rate," said Joseph Capurso, currency strategist at Commonwealth Bank. "A spike in currency volatility is likely."
Currency markets took the discount rate decision as a signal the U.S. central bank was coming closer to tightening its benchmark rate despite assurances from Fed policymakers to the contrary. The move triggered a rally in the greenback as higher rates increase the return on dollar-denominated assets.
But tamer-than-expected inflation data eased some of the rate hike anxiety.
The U.S. dollar inched up on the yen, advancing to 91.72 yen from 91.57 late on Friday when it gained nearly 0.4 percent. There is talk that some options at around 92.00/60 yen levels expire on Monday. The yen was broadly subdued as appetite for riskier assets like stocks and commodities revived.
Meanwhile, the pound remained under pressure at $1.5435, hovering just above 9-month highs struck on Friday after a surprisingly big fall in British retail sales. The Aussie was strong at a 25-year high against the pound, with the Australian dollar boosted at margin by talk of more rate hikes in coming months.
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