Euro steady against dollar; yen firms despite Japan move

LONDON: The euro steadied against the dollar Wednesday despite poor German data as traders waited to see whether the Federal Reserve would announce new economic stimulus measures to boost the struggling US economy.

The yen firmed against the dollar with players unimpressed with Japan's new steps to counter its currency's rise and after Moody's downgraded the country.

In London trade, the euro edged up to $1.4438 from $1.4436 late in New York on Tuesday. The dollar fell to 76.55 yen from 76.68 yen.

The price of safe-haven gold retreated one day after rising above $1,900 an ounce for the first time.

The euro was stable even though data showed business confidence fell sharply this month in Germany, Europe's biggest economy.

The monthly Ifo business climate index plunged to 108.7 points from 112.9 points in July, underscoring a sharp slowdown seen also in eurozone consumer confidence.

"The euro is holding up relatively well for now, supported by heavy US dollar selling in advance of Fed Chairman (Ben) Bernanke's speech on Friday with high expectations that it will set up QE3 before year end," said Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ in London.

Markets are suggesting that Bernanke could unveil a third round of quantitative easing (QE3), essentially a fresh move by the US central bank to pump up the slowing economy with newly-created money.

But Simon Denham, head of Capital Spreads trading group, questioned the logic of additional stimulus.

"Forgive me for sounding cynical but QE I and QE II failed to make much of an impact -- except of course to hustle S&P into downgrading US debt," he wrote in a note to clients.

"I am not sure exactly what all these eminent economists would be expecting QE III to do? Aside from indicate that the Fed was doing something."

Weakness in the US economy saw the dollar slump to a post-Second World War low of 75.95 yen last week. Although off its recent highs, the yen firmed against the dollar Wednesday after Japan's Finance Minister Yoshihiko Noda unveiled steps to combat the currency's rise.

A strong yen threatens to undermine the recovery of Japan's companies following the country's earthquake and tsunami in March.

Also Wednesday, ratings agency Moody's downgraded Japan's credit rating by one notch, blaming a build up of borrowing and revolving-door politics for delaying efforts to cut the world's largest debt.

The downgrade of Japan's government bond rating to Aa3 from Aa2 came days before the nation was due to see its sixth new leader in five years, with Prime Minister Naoto Kan set to resign over his handling of the March 11 disasters.

On Wednesday in London, the euro changed hands at $1.4438 against $1.4436 in New York late Tuesday, at 110.52 yen (110.69), £0.8747 (0.8753) and 1.1421 Swiss francs (1.1441).

The dollar stood at 76.55 yen (76.68) and 0.7911 Swiss francs (0.7924).

The pound was at $1.6504 (1.6488).

On the London Bullion Market, gold prices dropped to $1,848.88 an ounce from $1,876 on Tuesday.

Copyright AFP (Agence France-Presse), 2011