Euro eases against dollar in cautious trading

LONDON: The euro slipped against the dollar Wednesday in cautious, low-volume trading just days before a highly awaited speech by the US central bank chief.

The yen slipped against the dollar with players taking stock of Japan's new steps to counter its currency's rise and after Moody's downgraded the country.

In London trade, the euro slipped to $1.4398 from $1.4436 late in New York on Tuesday. The dollar rose slightly to 76.80 yen from 76.68 yen.

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

Traders were debating whether Federal Reserve chairman Ben Bernanke will unveil some version of 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, which would likely send the dollar falling.

Michael Hewson, CMC Markets said the the US dollar had "remained under pressure over the last 24 hours on the somewhat optimistic belief that this weeks Jackson Hole speech by Ben Bernanke will somehow precipitate a new round of measures to stimulate the US economy".

"It remains highly probable that markets are building up for a major disappointment in this regard, given the different political climate currently in the US, as well as the higher inflation rate, and the small matter of dissent within the confines of the FOMC on the efficacy of any new stimulus measures," Hewson added.

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.

The euro also eased on data that 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.

Meanwhile the US Commerce Department said new orders for US durable goods rebounded 4.0 percent in July from June, boosted by a surge in aircraft orders.

Kathleen Brooks at Forex.com said currency traders were "tracking NY stocks, which have been a little choppy so far. The markets are in take-profit mode."

The move towards profit-taking was reflected in fixed-income trade, with lower demand for both troubled eurozone sovereigns and the blue-chip ones.

"The German bund is slipping due to the rebound in the shares market," Nordine Naam, fixed income analyst at Natixis said adding that bond traders were also waiting for the outcome of Friday's Bernanke speech.

The yield, which moves inversely to price, on the German bund rose to 2.176 percent from 2.169 percent. The yield on Spain's benchmark 10-year bond rose to 4.993 percent from 4.973 percent.

Weakness in the US economy saw the dollar slump to a post-Second World War low of 75.95 yen last week. After these recent highs, the yen eased 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.

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.

"Moody's decision to downgrade Japan's credit rating is hardly surprising given that it had been on negative outlook," Lee Hardman of Bank of Tokyo-Mitsubishi said.

The downgrade 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 $1.4398 against $1.4436 in New York late Tuesday, at 110.58 yen (110.69), £0.8792 (0.8753) and 1.1460 Swiss francs (1.1441).

The dollar stood at 76.80 yen (76.68) and 0.7959 Swiss francs (0.7924).

The pound was at $1.6377 (1.6488).

On the London Bullion Market, gold prices dropped sharply to $1,770 an ounce from $1,876 on Tuesday.

Copyright AFP (Agence France-Presse), 2011