TOKYO: The euro edged up against the dollar in Asia on Wednesday but risk appetite was tempered by doubts about the scope of changes to Europe's bailout fund and as a downgrade of Spain by Moody's hit sentiment.
The European single unit edged up to $1.3767 in Tokyo trade from $1.3752 in New York late Tuesday. But the unit slipped to 105.55 yen from 105.66 yen.
The dollar was trading at 76.66 yen, down from 76.81 yen.
Sizeable buying by a major US bank helped the euro regain some ground after earlier falls against the dollar, an FX dealer at a major Japanese trust bank told Dow Jones Newswires.
However, analysts warned of volatility as "the market continues to react very strongly on headlines," HiFX Trading Director Mike Hollows said.
The single currency was boosted overnight after Britain's The Guardian newspaper reported on its website that the leaders of France and Germany have agreed to expand the eurozone rescue fund's firepower and the recapitalisation of Europe's banks.
The newspaper said they had agreed to boost the European Financial Stability Facility to more than two trillion euros ($2.7 trillion), from its current 440 billion euro lending capacity.
The report also sent US stocks higher.
But doubts emerged amid conflicting reports that European officials were still debating the size of the EFSF.
"The Guardian headline, that the package would be two trillion euros generated a risk rally, but soon markets realised that this was not new news, was denied, and the gains were eased," noted Emma Lawson of National Australia Bank.
"Expectations for something positive from the weekend EU summit come against the backdrop of continued uncertainty over Greece," said Osao Iizuka, head of FX trading at Sumitomo Trust & Banking.
"So I don't think we're going to see the euro surge for now," Iizuka said.
The euro came under pressure in early Asian trade in the wake of news that Moody's became the latest agency to downgrade Spain's debt rating on Tuesday, warning that no "credible" resolution to the country's economic crisis had yet emerged.
Moody's cut Spain's rating by two notches from A1 from Aa2, with a negative outlook, just days after a similar move from Standard & Poor's.
Investors are cautiously awaiting the summit of EU leaders in Brussels on Sunday.
HSBC NZ Chief Manager Daniel Brdanovic said: "If they can come up with something substantial then these downgrades become a little less relevant because Europe is going to stand unified to resolve this.
"I don't think anyone wants to sell off the euro too hard going into the weekend," Brdanovic said.
Comments
Comments are closed for this article.