FOREX-Euro knocked by Portugal downgrade; Fed mins eyed

* Euro hovers below resistance at $1.4283 Nov peak

* Euro knocked by Portugal downgrade, but falls limited

* Expectations for April rate hike support; Fed mins ahead

(Updates prices; changes byline, dateline; previous TOKYO)

By Jessica Mortimer

LONDON, April 5 (Reuters) – The euro slipped from a
five-month high versus the dollar on Tuesday, knocked by a
Moody’s downgrade of Portugal and as concerns about already
elevated rate hike expectations kept it below key resistance.

Rating agency Moody’s cut Portugal’s sovereign debt rating
by one notch [ID:nLDE7340AM], reminding investors that debt
problems in the euro zone’s periphery may prevent the European
Central Bank raising rates three times this year, as the market
is pricing in. (ECBWATCH: Quote, Profile, Research)

The euro’s rally stalled just ahead of resistance at its
November high of $1.4283, a key level because it roughly
coincides with trendline resistance drawn from the euro’s record
high set in July 2008.

It continued to garner support from expectations for a 25
basis point rate hike by the ECB on Thursday, however, with
traders reporting demand for euros from Russian accounts while
bids from $1.4140 to $1.4180 were expected to limit losses.

“There is a lot of good news priced into the euro already
and (ECB President Jean-Claude) Trichet will have to support the
rate view to keep the positive momentum,” said Niels
Christensen, currency strategist at Nordea in Copenhagen.

“People are very focused on the high from November last year
and are hesitant to test that level”.

Traders and analysts also said comments from Federal Reserve
Chairman Ben Bernanke were interpreted as less dovish by the
market and supported the dollar. Bernanke said a recent spike in
U.S. inflation was driven by commodity prices, although it was
unlikely to persist. [ID:nLDE73400S]

The euro (EUR=: Quote, Profile, Research) was down 0.2 percent to $1.4190 (EUR=: Quote, Profile, Research),
pulling away from a five-month high of $1.4269 hit on Monday on
trading platform EBS. It hit a low for the day of $1.41693 after
the Portugal downgrade.

A rise above its November peak of $1.4283 could open the way
to $1.4374, the 76.4 percent retracement of the euro’s slide
from November 2009 to June 2010. Traders cited stops through to
$1.4150.

The euro edged up 0.1 percent against the yen to 119.66 yen
(EURJPY=: Quote, Profile, Research), close to an 11-month peak of 120.073 yen hit on
Monday, with the 120.00 level seen as resistance.

The dollar rose 0.3 percent to 84.30 yen (JPY=: Quote, Profile, Research), edging
closer to a six-month peak of 84.735 yen set on Friday. A
200-day moving average at around 83.55 is now seen acting as
support.

Later on Tuesday, minutes of the Fed’s March 15 meeting will
be scrutinised for hints on whether policymakers may be edging
towards a tighter stance. Some Fed officials have struck a
hawkish tone recently, although others have remained dovish.

FOCUS ON CENTRAL BANKS

The single currency has already risen more than 6 percent
against the dollar and over 10 percent versus the yen this year,
making investors reluctant to buy more ahead of this week’s ECB
meeting.

“For the ECB, an April interest rate hike is a done deal and
one or two more hikes are priced in. It’s hard to see a positive
surprise from here,” said Masafumi Yamamoto, chief FX strategist
at Barclays Bank in Tokyo.

“Still, the euro zone would be the first to raise interest
rates, which supports the euro. Expectations for diversification
flows from higher oil prices are also positive. There is also a
risk that the Fed minutes may show a hawkish tone.”

The U.S. dollar (.DXY: Quote, Profile, Research) was up 0.1 percent against a basket
of currencies at 76.124.

Meanwhile, the Australian dollar took in its stride the
Reserve Bank of Australia’s decision to keep interest rates
unchanged at 4.75 percent as widely expected. [ID:nL3E7F40J2]

The Aussie dipped 0.35 percent to $1.0330 (AUD=D4: Quote, Profile, Research),
pressured by profit-taking in the wake of its rise to a 29-year
high of $1.0422 the previous day. There was talk of both bids
and stop-loss offers around $1.0300.
(Additional reporting by Natsuko Waki in Tokyo; Editing by
Catherine Evans)

FOREX-Euro knocked by Portugal downgrade; Fed mins eyed