Reuters: Market News: FOREX-Dollar pressured, euro firm on rescue fund boost

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FOREX-Dollar pressured, euro firm on rescue fund boost Mar 30th 2012, 12:19 Fri Mar 30, 2012 8:19am EDT * Dollar index hits 1-month low * Euro rises, but vulnerable to sovereign debt worries * EU ministers agree boost rescue fund, Spain budget ahead By Jessica Mortimer LONDON, March 30 (Reuters) - The dollar fell to its lowest in a month against a basket of currencies on Friday, extending falls made on expectations of more U.S. monetary stimulus and helping the euro hold its ground as the bloc agreed steps to prevent the debt crisis spreading. Euro zone finance ministers agreed on Friday on a temporary increase in the capacity of their bailout funds to prevent a new flare-up of Europe's sovereign debt crisis, although analysts said markets may judge it too small to be convincing. That left the euro still vulnerable to concerns about unsustainable debt levels in some euro zone countries. Some strategists said the euro could test the lower end of the range roughly between $1.30 to $1.35 that it has traded in since late January. Market players were also focused on Spain, where the government was expected to announce yet more austerity measures in its budget on Friday in a struggle to get the floundering economy back on a sustainable fiscal path. "The stories we've been seeing leading up to the euro zone meeting have probably raised hopes and the latest suggestions are that maybe the increase falls short of some of these initial expectations," said Ian Stannard, head of European FX strategy at Morgan Stanley. "The market also fears further slippage as far as Spanish austerity and budget measures are concerned. If we see that it will be unhelpful for the euro." The euro rose 0.3 percent to $1.3343, near a one-month peak of $1.3385 hit earlier this week. Traders said a reported options barrier at $1.34 could limit its rise. Euro gains helped push the dollar index to a one-month low of 78.727. The greenback remained under pressure after dovish comments from Federal Reserve chairman Ben Bernanke and softer U.S. economic data this week raised expectations of further monetary stimulus. The index was on course for its biggest quarterly fall since the second quarter of last year. Traders said the dollar was also weighed down by selling related to month-end moves by portfolio investors. The Chicago purchasing managers' index, personal consumption and expenditure data and the University of Michigan sentiment survey, due later on Friday, could weigh on the dollar if they are below forecasts. The dollar also hit a one-month low versus the Swiss franc while against the yen it was down 0.45 percent at 82.01 yen, having hit a three-week low of 81.830 yen. Even though this year's dollar rally against the yen has lost steam over the last three weeks, the greenback was still poised to end the Jan-March quarter nearly 7 percent stronger. The Japanese yen has come under steep selling pressure since the Bank of Japan unexpectedly eased monetary policy last month. Sterling also hit a 4-1/2 month high versus the U.S. currency, while the higher-yielding Australian dollar gained 0.4 percent and the New Zealand dollar 0.6 percent. EURO STILL VULNERABLE The euro has risen more than 3 percent this quarter against the dollar, leaving it on track for its best quarterly performance in a year, benefiting after the European Central Bank's second injection of cheap long-term funds helped ease euro zone debt worries. Many analysts expect the euro could resume its decline in the coming quarter on concerns about indebted peripheral countries and the prospect that a large economy such as Spain or Italy may need help. Even if Spain agrees tough deficit reduction measures on Friday there are fears this will damage an already anaemic economy. "The key question is whether it is possible for those countries to compete on the global market," said Anders Soderberg, currency strategist at SEB in Stockholm. "For each set of austerity measures they announce, the economy takes a step lower." The euro was down 0.1 percent against the yen at 109.47 yen , though it pulled away from a trough of 108.76 hit on Thursday, its lowest in one week. Link this Share this Digg this Email Reprints

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