Euro rangebound ahead of ECB meeting

[You must be registered and logged in to see this image.]




TOKYO: The euro retained its overnight gains in Asia on Thursday but market participants refrained from making major moves ahead of the European Central Bank's policy meeting.

The euro fetched $1.3343 in Tokyo trade against $1.3338 in New York late Wednesday. The European single currency traded at 102.39, little changed from 102.40. The dollar edged down to 76.72 yen from 76.86 yen.

"The market stabilised overnight as a more optimistic view emerged on the picture in Europe," said Tohru Sasaki, strategist at JPMorgan Chase Bank in Tokyo.

"But any moves are within position adjustments and we cannot be too optimistic," Sasaki said. "The euro is expected to resume its downturn amid expectations that fresh problems are likely to surface."

Market participants regained their risk appetite overnight after US and European stock markets scored robust gains on hopes European nations will support their banks to prevent the region's debt crisis from spreading.

Dealers said comments by German Chancellor Angela Merkel on recapitalising the banks confirmed reports that the European Union was working on such a plan to tame a crisis which claimed its first victim, Dexia bank, this week.

"I think it is justified, if we have a joint approach," Merkel said.

The news cheered markets, which have fallen heavily on deepening doubts that the EU could forge a plan for concerted action, with Greece's debt problems now threatening not only the euro but global growth as well.

"Basically market participants have already finished buying back the euro yesterday to adjust positions ahead of the ECB," a senior FX dealer at a Japanese trust bank told Dow Jones Newswires.

"With the positioning now essentially flat the currency should remain top-heavy due to continued concerns over the peripheral countries," the dealer said.

The market is cautiously awaiting the ECB's policy meeting later in the day as views are divided among ECB watchers whether the bank would cut its key interest rates.

After raising interest rates twice this year, the governing council effectively called a halt to the cycle last month amid increasing anxiety over the eurozone debt crisis.

But the situation now appears to have deteriorated so dramatically since then to give rise to expectations of a rate cut.

"The market appears to have priced in a race cut by some 25 basis points, while JPMorgan predicts a cut by 50 basis points and some others expect no rate cut," Sasaki said. (AFP)