FOREX-Euro recovers as dollar selling resumes

* Dlr’s bounce turns out to be brief

* Chinese and ECB comments cited as reason for sell-off

* Dollar/yen falls to lowest since intervention

By Anirban Nag

LONDON, Sept 28 (BestGrowthStock) – The struggling dollar slipped on
Tuesday after a brief rally ran out of steam, while the euro
recovered after a senior official said some European Central
Bank emergency support may be withdrawn.

Traders also ascribed the dollar’s drop to reported comments
from a former Chinese central bank adviser who said a
devaluation of the U.S. currency may be inevitable.

Against the yen, the dollar fell to its weakest since
Japanese authorities stepped in to try and stem the currency’s
gains, sparking jitters they may intervene again.

Many traders expect the greenback’s downtrend to continue,
on a view that any future quantitative easing (QE) by the
Federal Reserve, even in a modest form, would probably still be
more aggressive than moves by other central banks.

“The China comments gave euro/dollar its biggest impetus as
it made people think perhaps there would be a reserve shift out
of dollars,” said Adrian Schmidt, currency strategist at Lloyds.

The euro was lifted back into positive territory by comments
from ECB Executive Board member Juergen Stark, considered a
hawk, that the ECB may not renew some of its support measures
when they mature at year end. [ID:nLDE68R0W8].

At 1203 GMT, the euro (EUR=: ) was up 0.1 percent at $1.3466,
not far from a five-month peak of $1.3507 hit on Monday.

The euro earlier dropped as low as $1.3382 on speculation
Spain’s ratings may be downgraded by Moody’s. [ID:nLDE68Q0TH].

The dollar index (Read more about the global trade. ) (.DXY: ) (=USD: ) fell back towards a seven-
month low of 79.19 hit on Monday, standing at 79.427. It has
lost more than 4 percent this month as investors sold the
greenback on the back of a slow U.S. recovery.

“The dollar’s trend remains lower and investors will be
looking to sell at better levels,” said Paul Mackel, director of
currency strategy at HSBC.

YEN PUSHES HIGHER

The dollar fell as low as 84.05 yen (JPY=: ) on electronic
trading platform EBS, traders said, its weakest since Sept. 15,
when Japan sold nearly 2 trillion yen for dollars.

Support is seen at that low of 84.05, which marks the 61.8
percent Fibonacci retracement of its rise in the hours before
and after Tokyo’s yen-selling intervention on Sept. 15.

Some traders expect more dollar selling by Japanese
exporters before the end of Japan’s fiscal first half on Sept.
30. There are said to be some stop-loss orders around 83.90 yen.

Analysts said a narrowing spread between U.S. and Japanese
two-year yields (US2YT=RR: )(JP2YT=RR: ) also kept downward pressure
on dollar/yen, but anxiety Tokyo may intervene if the yen gets
up towards 82 per dollar helped check gains.

“There seems to be political pressure on the BOJ to ease
policy further, but that is unlikely to alleviate much of the
upward pressure that we are seeing on the yen from commercial
flows,” said Ian Stannard, senior currency strategist at BNP
Paribas.

“So the downside risks for dollar/yen will remain and a
further round of intervention will be required.”

The Bank of Japan is divided about the need to ease monetary
policy next week, which may mean it delays taking action despite
government calls for central bank measures to support the
economy. [ID:nSGE68Q0KS]

Sterling (GBP=D4: ) rose to a 7-week high of $1.5896, helped
by a narrower UK current account deficit for the second quarter
and reports the European Union’s annual farm subsidy to the UK
would be converted into pounds at the end of the month.

(Additional reporting by Jessica Mortimer; editing by Chris
Pizzey)

FOREX-Euro recovers as dollar selling resumes