FOREX-Euro gains vs dollar on Fed’s easy policy view

* Euro higher vs dollar on Fed-ECB diverging rate views

* Dollar reverses gains made on Geithner comments in WSJ

* Traders cite Asian demand boosting euro vs dollar

(Adds comment, updates prices)

By Naomi Tajitsu

LONDON, Oct 21 (BestGrowthStock) – The euro rose against the dollar
on Thursday as investors piled into the single European currency
in the belief that the interest rate differential with its U.S.
counterpart will continue to widen.

The dollar relinquished gains made earlier in the day as
investors reckoned comments from U.S. Treasury Secretary Timothy
Geithner ahead of a G20 finance ministers meeting may not have
warranted a brief jump in the U.S. currency.

The dollar stayed under broad selling pressure, hovering
near a 15-year low against the yen as it continued to take a
beating on speculation the Federal Reserve may implement more
dollar-negative quantitative easing next month.

Expectations of more Fed easing have driven three-month
interbank dollar rates (USD3MFSF=: ) lower. At the same time, euro
zone rates (EURIBOR3MD=: ) have risen to their highest since July
last year, widening the spread between the two.

Some analysts said this widening spread, which indicates
U.S. and euro zone rates are expected to diverge further, was
helping push the euro higher.

“The majority of the market sees a positive interest rate
differential in the euro given the difference in euro and dollar
money market rates,” said Stephen Gallo, head of markets
analysis at Schneider Foreign Exchange.

“There is an ongoing diversification away from the dollar,
and that’s increasing demand for euros,” he added.

The euro (EUR=: ) was at $1.4030 having climbed to a session
high of $1.4050 according to Reuters data. Technical traders
highlighted the euro’s rally stalled at the 76.4 percent
retracement of its decline from this month’s high of $1.4157 to
yesterday’s low at $1.3696.
Traders said Asian demand helped boost the single currency.
Many Asian central banks have been investing their proceeds from
intervention in their currency markets into euros.


Their steady intervention to drive down their currencies
against a weakening U.S. dollar has led to some speculation that
an agreement may be in the offing this weekend at the G20 meet.

Finance ministers and central bank chiefs from the Group of
20 meet on Friday in South Korea to discuss a common path on
managing currency, trade and economic imbalances. G20 leaders
will meet in Seoul next month.[ID:nTOE69K01G]

But traders said an agreement on currencies was unlikely
this week given the ongoing race for some countries to weaken
their currencies, and that the market was positioned for more
dollar selling heading into the meeting.

Chris Turner, chief currency strategist at ING said that
should the G-20 acknowledge that emerging Asia will have to
reform their exchange rate systems and embrace flexibility, it
would make a good start to address the global currency war.

“Such an outcome should trigger more flows into the short
dollar/Asia trade,” he added.

The dollar index (Read more about the global trade. ) (.DXY: ) slipped 0.3 percent to 76.937,
staying near a 10-month low of 76.144 hit last week.

The dollar (JPY=: ) fell as low as 80.93 yen on Reuters data,
pulling back from the day’s high of 81.82 yen and closing in on
80.84 yen hit on Wednesday, its weakest since mid-1995.

The market is wary that Japanese authorities could intervene
to slow the yen’s rise again, after they did so on Sept. 15,
selling yen for the first time in more than six years.

The dollar reversed gains made after the Wall Street Journal
quoted Geithner as saying major currencies were roughly in
alignment and he would use the G20 meet to move towards norms on
currency policy and rebalance the global economy.

Investors initially took his comments as a cue to buy the
dollar, but analysts argued Geithner’s comments did not mark a
significant change in U.S. forex policy, adding that this
explained the pullback in the U.S. currency’s gains.
“What Geithner said was not targeted at the U.S. dollar. He
was making his position clear before the G20 that the U.S. would
not fight everybody on FX, just China,” said Ulrich Leuchtmann,
currency strategist at Commerzbank in Frankfurt.
(additional reporting by Anirban Nag)

(Editing by Catherine Evans)

FOREX-Euro gains vs dollar on Fed’s easy policy view