Euro rangebound ahead of Sarkozy-Merkel talks

TOKYO: The euro was rangebound in Tokyo Tuesday, as investors waited for the outcome of a meeting between French President Nicolas Sarkozy and Germany's Angela Merkel on the eurozone debt crisis.

The single currency could slip against the dollar and the yen later in the day amid expectations the talks will not bring any major announcement on a common eurozone bond, said Minoru Uchida, senior analyst at the Bank of Tokyo-Mitsubishi UFJ.

"Although moves could be small, I expect some euro-selling and yen-buying on disappointment," he told Dow Jones Newswires.

The euro was slightly higher against the dollar in Tokyo afternoon trade at $1.4412 compared with $1.4440. Against the yen it was lower, fetching 110.78 yen from 110.95.

John Kyriakopoulos of National Australia Bank said "a nervous sense of calm appears to have settled on the European periphery" with Italian and Spanish 10-year bond yields trading at below 5.0 percent compared to well over 6.0 percent during last week's turmoil.

Last week's volatility prompted a record 22 billion euro ($32 billion) bond-buying intervention from the European Central Bank in a bid to calm markets.

Investors have been watching anxiously to see whether Sarkozy and Merkel would agree a plan to boost confidence in Europe.

But on the eve of the talks both sides talked down the chances of a breakthrough. A German spokesman flatly ruled out talk of issuing a joint eurozone bond.

Investors also remained focused on the safe haven Swiss franc amid continued speculation that Swiss authorities may be working towards establishing a euro-Swiss franc peg.

The euro fetched 1.1275 Swiss francs from 1.1324. The dollar bought 0.7810 from 0.7844.

"Markets remain aflutter about what the (Swiss National Bank), backed by the Swiss government and forecasts of slowing growth and with deflation risks potentially on the horizon might do to restore some balance to the FX market," RBC Capital Markets said in a note to clients.

The dollar could firm on hopes that the Federal Reserve Bank could offer further easing measures, said Barclays Capital chief Japan strategist Masafumi Yamamoto.

The US currency could also benefit if the rebound of global markets continues and lifts US Treasury yields, he told Dow Jones Newswires.

The greenback was lower against other major Asian currencies, slipping to Sg$1.2020 from Sg$1.2072 on Monday, at 1,048.19 South Korean Won from 1,073.28 and to Tw$28.81 from Tw$28.95

The unit also fell to 8,518.68 Indonesian rupiah from 8,541.75, to 42.30 Philippine pesos from 42.49 and to 29.06 Thai baht from 29.89.

Copyright AFP (Agence France-Presse), 2011