Tuesday, May 4, 2010

FOREX-Dollar up on strong US data, Greek aid worries

18:17, Monday 3 May 2010
* Euro down, market unconvinced by parts of Greek aid plan
* Dollar rallies vs yen, helped by strong ISM report
* Aussie hit by China tightening but recovers ground
(Adds comments, details. Changes byline.)
NEW YORK, May 3 (Reuters) - The dollar rose against the euro and yen on growth in U.S. manufacturing and doubts about Greece's ability to honor a pledge for drastic wage cuts in return for an aid package.
After rising in Asian trade, the euro shed more than 1 percent earlier, falling beneath $1.32 as markets worried whether Greece could adopt 30 billion euros of wage cuts and tax hikes in exchange for a 110 billion euro ($147 billion) emergency aid package.
Wall Street breathed a sigh of relief an agreement was reached and a safe-haven bid for U.S. Treasuries faded but currency traders worried whether Germany would secure parliamentary approval to release the money. Greece needs funds by May 19 to meet a big repayment to creditors. See [ID:nSGE64208W1 and [ID:nLDE6420B1]
"Over the past months, whenever there was an indication that a bailout agreement had been reached, the euro was seen rallying. This time though, that was definitely not the case," said Dan Cook, a senior market analyst at IG Markets Inc., in Chicago."
"Investors were subject to a bit of 'sticker shock' when the 110 Billion euro price tag was revealed," he added. "That hefty sum also carries with it some strict conditions that many question whether Greece will be able to comply with."
In afternoon trading in New York, the euro fell 0.8 percent to $1.3189 after rising above $1.33 earlier. Traders said downside support was seen at the one-year low around $1.3112 touched last week.
Market holidays in Tokyo and London kept trading volume a bit lighter than usual, and some traders said that exaggerated the scope of the moves a bit.
But investors remain heavily short the euro, as Commodity and Futures Trading Commission data showed on Friday, and sentiment remains bearish.[IMM/FX]
"I wouldn't be surprised to see (the euro) below $1.30 in the next three months," said Jacob Oubina, a strategist at Forex.com in Bedminster, New Jersey.
Currency analysts at UBS AG (Virt-X: UBSN.VX - news) said in a note investors should look to sell into any euro strength over the next few days, and the euro/dollar may hit 1.30 in the medium term.
The dollar hit an 8 1/2-month high against the yen on Monday as U.S. manufacturing data boosted optimism about the economic recovery.
The dollar rose to 94.80 yen , according to Reuters data, its highest level since Aug. 24, and was last changing hands at 94.71 yen, up 1 percent on the day. [ID:nN03189741]
Strong U.S. data has reinforced expectations the Federal Reserve will raise interest rates later this year, while the Bank of Japan is seen keeping rates low indefinitely.
The move "encourages speculation that the Federal Reserve could move its time frame forward for tightening monetary policy while the Bank of Japan is likely to remain on hold for the foreseeable future," said Michael Malpede, analyst at Easy Forex in Chicago, making a higher-yielding dollar more attractive than the yen to global investors.
The Australian dollar rose 0.2 percent to $0.9268 , recovering losses suffered after China's central bank said it was lifting lenders' reserve requirement ratio by 50 basis points, its third hike of that magnitude this year. [ID:nSGE64200J]
Even with Greece securing aid, investors said there were still concerns about other indebted euro zone countries such as Portugal and Spain.
To ease concerns, the European Central Bank on Monday suspended collateral rules for Greek government debt and said it would continue to accept the bonds regardless of the country's credit rating. [ID:nLDE6420A9]
S&P cut Greece's rating to junk status last week. According to previous rules, if the two other major ratings agencies were to follow suit, banks wishing to use Greek debt as collateral for ECB loans would have had to take a significant haircut.
(Additional reporting by Wanfeng Zhou in New York; Editing by Diane Craft)

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