Thursday August 13, 2009 - 10:31:00 GMT
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Reuters - www.reuters.com
FOREX NEWS-Euro hits 1-week high vs dlr on growth surprise
* Upside surprise in German, French GDP buoys euro
* Euro zone economy shrinks just 0.1 pct in Q2
* Fed's more upbeat outlook helps spur risk appetite
* Higher-yielders like Aussie, kiwi shine vs dollar
(Updates prices, adds euro zone GDP data)
By Ian Chua
LONDON, Aug 13 (Reuters) - The euro hit a one-week high against the dollar on Thursday after the euro zone's two biggest economies posted surprise returns to growth in the second quarter, helping drag the dollar down versus a basket of currencies.
The dollar was further weighed by growing demand for riskier assets including commodities and higher-yielding currencies such as the Australian dollar AUD= after the Federal Reserve on Wednesday gave its clearest statement to date that it saw the U.S. recession nearing an end.
As expected, the Fed kept its benchmark rate unchanged near zero and said it would very likely stay there for an extended period to guide the way to recovery. See [ID:nN1272730]
Striking an upbeat note for the euro zone, reports on Thursday showed the region's two biggest economies, Germany and France, returned to growth in the second quarter, helping the entire 16-nation bloc post a modest 0.1 percent contraction that quarter.
After a weak 2009, the euro zone economy is expected to return to growth next year, the European Central Bank said in its monthly bulletin. See [ID:nLD331672] and [ID:nLD36656]
At 0927 GMT, the euro was up 0.5 percent on the day at $1.4270 EUR=, having reached a session high of $1.4280 -- a level last seen on Aug. 7. Against the yen, the euro gained 0.8 percent to 137.49 EURJPY=R.
Further steep gains in the euro, however, are unlikely for now, said Adam Cole, global head of FX strategy at RBC Capital Markets in London.
"What we really need to see for the euro to run any further is some evidence from leading indicators that growth is actually turning positive at the moment. So there is a limit to how far it can run until we get some convincing evidence that Q3 is likely to be positive," he said.
The dollar edged up 0.3 percent versus the yen to 96.32 JPY= but fell 0.4 percent against a basket of major currencies .DXY to 78.526. The dollar index reached a session low of 78.502 -- a level last seen on Aug. 7.
Traders said the U.S. currency's upside against the yen seemed to be capped due to talk of Japanese investors repatriating funds related to $27 billion in coupon payments on U.S. Treasuries due on Aug. 15. In addition, $61 billion in coupon securities mature on the same day.
Higher-yielding currencies such as the Australian and New Zealand dollars extended gains made the previous day after rebounding from steep losses.
The Aussie was up 1.2 percent at $0.8419 AUD=D4, having fallen as low as $0.8180 on Wednesday, while the kiwi advanced 0.9 percent to $0.6761 NZD=D4.
Indicating better risk appetite, global stocks .MIWD00000PUS rose 0.8 percent, U.S. crude CLc1 popped above $71 a barrel, while copper prices MCU3=LX hit a 10-1/2 month high of $6,414.50 a tonne.
While sentiment towards riskier assets has improved, there was still a degree of caution on the Fed's move to extend the time frame of asset purchases as it indicated the economy was still vulnerable, analysts said.
The Bank of England struck a dovish note on Wednesday, saying it might consider cutting the rate it pays on bank reserves in a bid to encourage them to lend more funds. Last week it said it was pumping in an additional 50 billion pounds by buying assets with newly created money.
In contrast, Norway's central bank held rates at a record low but opened the door for increased borrowing costs sooner than expected as the economy continued to recover.
With the Fed meeting over, investors are now looking to economic data for fresh trading cues, particularly U.S. retail sales at 1230 GMT.
Sales are expected to rise 0.7 percent in July from June, following a 0.6 percent gain previously. See [MI/DIARY].
"The problem with Fed statement is that the market can read into it what it wants, leaving both sides content ... hence, for now it is still unclear which way the USD will jump," said Stuart Bennett, senior FX strategist at Calyon in London.
"If the market decides to buy the USD on the back of the more upbeat headline, we could see a similar USD rally as after last Friday's employment report."
The majority of dealers surveyed by Reuters said the U.S. recession will end this quarter but they do not expect the Fed to raise rates until 2010 at the earliest, with four banks seeing a hike in the first half and seven in the second half. [FED/R] (Additional reporting by Kaori Kaneko in TOKYO; editing by Chris Pizzey/Victoria Main)
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