LONDON: The euro edged up against the dollar on Tuesday, consolidating the previous day's gains ahead of a meeting of euro zone finance ministers that some market players hope will bring progress in tackling the region's debt crisis.
But strategists warned that the euro remained vulnerable to renewed selling unless investors see concrete action, given they have been disappointed by policymakers in the past.
Market players will also focus on a bond auction in Italy, which aims to raise up to 8 billion euros. Any further hefty rises in Italian bond yields could trigger demand for the safe-haven dollar.
The euro was last up 0.1 percent to $1.3324 , easing from a session high of $1.3373 with traders citing selling interest from Russian names.
It remained within sight of the high of $1.3399 hit on Monday even after the IMF firmly denied an Italian newspaper report it was in talks to bail out Italy.
Some traders said markets were simply looking for an excuse to cut bearish positions on the euro and commodity currencies, after going short risk ahead of the US Thanksgiving holiday last week. Stop loss orders were cited through $1.34.
"Optimism has remained from yesterday but it has been a surprise to me. Finance ministers will meet in Brussels, but the net result could be quite disappointing so we see further pressure on the euro," said Lutz Karpowitz, currency analyst at Commerzbank.
Euro zone finance ministers meet later on Tuesday to approve detailed arrangements for scaling up the EFSF rescue fund to help prevent contagion in bond markets. They are also expected to release a vital aid lifeline for Greece.
Germany and France reportedly aim to outline proposals for a fiscal union before a European Union summit on Dec. 9, which a growing number of investors see as perhaps the last chance to avert a breakdown of the single currency area.
"Policymaking in Europe seems to be moving in the direction of further integration, which is positive, but uncertainty remains about getting there in time to save the euro. A breakup of the euro zone can be avoided, but bold measures are needed soon," Jose Wynne, analyst at Barclays Capital wrote in a note.
There was little reaction to news that Fitch had cut the United States' credit outlook to negative, although it expected no move on the actual rating until late 2013.
The euro also showed limited reaction to a report on French newspaper La Tribune's website saying Standard & Poor's could change the outlook for France's triple-A rating to negative within the next 10 days.
YEN EDGES LOWER
The dollar extended its recent gains versus the yen, hitting a one-month high of 78.29 yen on trading platform EBS. After paring gains, the dollar stood at 77.92 yen, almost flat on the day.
A trader for a Japanese brokerage house in Tokyo said dollar/yen has been supported recently by year-end position unwinding as well as some yen-selling flows from investors taking a bearish view towards Japanese assets.
"There have been some yen-selling flows since yesterday from players such as macro funds, probably based on a 'sell JGBs, sell Japan' type of view," the trader said.
The euro was up 0.1 percent against the yen at 103.89 . Meanwhile, the risk-correlated Australian dollar hung onto strong gains made versus the greenback on Monday, last up 0.5 percent at US$0.9944.
Data from the US Commodity Futures Trading Commission shows currency speculators raised their bets in favour of the US dollar to the highest level in five weeks in the week ended Nov. 22.
The same data also showed speculators increased their bets against the euro from a week earlier, suggesting that short-covering may lend the euro support.
Comments
Comments are closed.