FOREX-Euro dogged by debt concerns, dollar supported

* Euro slips, concerns about euro zone debt linger

* Dollar supported on higher Treasury yields

* Investors await Fed meeting, EU summit

(Adds comment, details, updates prices)

By Naomi Tajitsu

LONDON, Dec 13 (BestGrowthStock) – The euro slipped against the
dollar on Monday, dogged by uncertainty about how euro zone
countries will deal with their debt problems, while the U.S.
currency remained supported by rising U.S. Treasury yields.

Overall currency movements were limited because few
investors were willing to take on big positions before a Federal
Reserve meeting this week and a European Union summit, and
liquidity is drying up as the year comes to a close.

Further selling in Treasuries pushed the 10-year yield to a
six-month high and supported the dollar on the view that rising
yields would make U.S. assets more attractive, while the euro
struggled before the two-day EU summit beginning on Thursday.

As speculation remains high that Portugal and other
countries may follow Ireland and Greece in the bailout queue,
European leaders are expected to agree to tweak the EU treaty,
paving the way to create the European Stability Mechanism (ESM)
from 2013, when a temporary mechanism expires.

Off the agenda is the controversial topic of joint euro zone
bonds, supported by some member states while opposed by many
officials in Germany, the bloc’s dominant economy.

With few surprises expected from the summit, Stephen Gallo,
head of markets analysis at Schneider Foreign Exchange, said the
euro was unlikely to change its general downward trend.

“The market is still poised to favour the dollar,” he said.

“Speculative and leveraged money is still more inclined to
be short of euros and they will stay this way through December
and the first quarter of next year.”

Speculators trimmed short positions against the dollar last
week but more than doubled their bets against the euro,
according to data from the Commodity Futures Trading Commission,
signalling growing bearishness on the currency. [IMM/FX]

Some analysts said a quick decision on the ESM may provide a
boost to the euro as it would remove at least one layer of
uncertainty about the stability of the euro zone.

Before that, the Fed meets on Tuesday. Officials are
expected to assess its second round of quantitative easing
announced in November, the prospect of which dragged the dollar
lower in September and October.

But they are not expected to signal any shift away from
their intention to buy $600 billion in government debt, which is
seen limiting any significant dollar upside. [ID:nN08167483]

The euro (EUR=: ) slipped 0.1 percent on the day to $1.3220,
having touched a session low of $1.3182. Traders said options
expiries around $1.3200 were acting as a magnet for the currency
pair around that level.


The dollar index (Read more about the global trade. ), which tracks its movements against a
currency basket, rose 0.1 percent to 80.183, while the U.S.
currency rose 0.4 percent to 84.25 yen.

The dollar has been supported by a rise in Treasury yields
which climbed as high as 3.39 percent (US10YT=RR: ) after a U.S.
proposal to extend Bush era tax cuts. This is seen helping the
economy even as it raises issues about mounting U.S. deficits.

JPMorgan analysts said firmness in the dollar due to rising
yields was unlikely to continue in the longer term.

“The current surge in UST yields should have partly
reflected an expected deterioration in the U.S. fiscal
situation, but a rise in long-term yields backed by concern on
fiscal policy should not be supportive for the currency in the
mid/long-term,” they said in a note.

Analysts said weekly data on bond purchases by the European
Central Bank later in the day would offer clues on how much the
central bank has been supporting the bond markets of fiscally
weak euro zone countries.

“If the ECB data shows heavy bond-buying it would mean that
the compression in the peripheral yield spreads has not been a
sign that markets are willing to take on the risk of buying
bonds of weaker euro zone countries,” said Ulrich Leuchtmann,
currency strategist at Commerzbank in Frankfurt.
(Editing by Ruth Pitchford)

FOREX-Euro dogged by debt concerns, dollar supported