Euro back on the defensive ahead of key EU summit

By Anirban Nag

SYDNEY (BestGrowthStock) – The euro steadied on Thursday, having resumed its slide in the previous session, with investors reluctant to take positions ahead of a key European Union summit that could shed light on a possible rescue package for Greece.

The U.S. dollar was broadly higher, drawing support from Federal Reserve Chairman Ben Bernanke who laid out the gameplan for how he would dismantle the extensive emergency supports put in place to bolster the economy.

The dollar index (Read more about the global trade. ) (.DXY: ) held ground above the 80 level, with Bernanke’s comments that rates will rise at “some point” boosting expectations that the Fed may start tightening before other major counterparts in Europe and Japan.

The dollar stayed on firmer ground on the yen, trading at 89.96 yen, after having advanced nearly 0.4 percent on Wednesday. Volumes are likely to be on the lighter side in Asia since Tokyo is shut for a holiday.

The euro was steady at $1.3732, having shed 0.4 percent on Wednesday, according to Reuters data. It has fallen over 4 percent this year, hurt by mounting worries on how some eurozone countries like Greece, Portugal and Spain will service their debt. It hit a 8-1/2-month low of around $1.3580 last week.

European Union leaders will hold a summit on the economy on Thursday and speculation is swirling that a package will be hammered out for debt-strapped Greece.

Euro zone officials were in intense talks on Wednesday what could be done for Greece but no agreement had been reached as yet. It was suggested the EU summit meeting might only offer political support with details to come later.

“It seems all markets are focused on events in the eurozone and the “will they” or “won’t they” commit bags of cash to a bailout in some manner,” said David Watt, senior currency strategist at RBC Capital.

“Such levels of focus tend to be reserved for Federal Open Market meetings and U.S. nonfarm payrolls reports, not EU summits.”

Some analysts were unconvinced a bailout, if there were one, would solve all of Europe’s problems. Concerns about the fiscal positions of similarly debt-impaired euro zone countries such as Portugal and Spain have made investors wary.

Meanwhile, sterling inched up $1.5595, having fallen 0.8 percent on Wednesday after the Bank of England released dovish inflation forecasts and left open the door to extending quantitative easing.

The Australian dollar was subdued at $0.8749,, with investors’ focus on the local January employment report due at 0030GMT. Forecasts are for 1a 5,000 rise in jobs, with the unemployment rate ticking up to 5.6 percent.

The data has surprised on the upside for four months in a row so some suspect this one may disappoint. Another strong number would narrow the odds for a rate hike to 4.0 percent next month.

Also, China will release inflation data for January.. Fears that China will move to tighten monetary policy has led to a recent sell-off in riskier assets like stocks and commodities.

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(Editing by Wayne Cole)

Euro back on the defensive ahead of key EU summit