FOREX-Euro up slightly against dollar in choppy trade

* Interest rate differentials continue to favor euro

* Dollar reverses gains made on Geithner comments in WSJ

* Asian demand helps euro vs dollar
(Updates bullets, prices)

By Steven C. Johnson

NEW YORK, Oct 21 (BestGrowthStock) – The euro was slightly higher
against the dollar on Thursday in choppy trade as investors
wrestled with uncertainty over the size and shape of expected
U.S. monetary easing.

With unemployment hovering around 9.5 percent, the Federal
Reserve is widely expected to pump more money into the economy,
likely through direct purchases of Treasury debt.

Reflecting this, the spread between three-month interbank
dollar and euro rates has steadily widened in the euro’s favor,
making it more attractive to global investors.

But the size, shape and timing of the Fed’s move has left
investors guessing, and nearly two months of speculation has
given them plenty of time to sell the dollar, pushing it to
extreme levels against some major currencies.

“There is a touch of apprehension in the market, and
concerns are building about how hard the Fed’s going to hit and
what the market reaction will be,” said C.J. Gavsie, managing
director of FX sales at BMO Capital Markets. “So we’ve got to
be cautious about getting too bearish on the dollar.”

The euro rose as high as $1.4050 overnight but retreated
in the New York session, with traders citing selling by Middle
East accounts. It was lately up 0.1 percent to $1.3973.

The European Central Bank, in contrast to the Federal
Reserve, has talked about winding up some of its stimulus
programs. Euro zone governments are preparing a tough slate of
spending cuts and tax increases to get public finances in
order. The Obama administration says the time is not right for
belt tightening as the U.S. recovery is very fragile.

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.

Against the yen, the dollar continued to hover near a
15-year low and was last trading flat at 81.16.

Sterling fell 0.5 percent to $1.5753 as weak retail sales
data stoked speculation that the Bank of England could engage
in more monetary easing.

G20 LINGERS

Earlier, the dollar rose after U.S. Treasury Secretary
Timothy Geithner said major currencies were in balance, but
traders seized on its brief bounce as a chance to sell it
again, with Asian accounts cited as large buyers.

Analysts argued Geithner’s comments did not mark a
significant change in U.S. policy.

“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.

Traders were far from convinced G20 ministers would solve
once and for all their exchange rate disagreements at a weekend
meeting. Some said there was reluctance to take extreme
positions one way or the other.

“There’s so much uncertainty and I really think we’ll see a
lot of position jockeying ahead of the weekend,” said Greg
Salvaggio, vice president of trading at Tempus Consulting. “I
wouldn’t be surprised to see some dollar strength ahead.”

But Chris Turner, chief currency strategist at ING, said
that if the G20 acknowledges 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.

(Additional reporting by Naomi Tajitsu in London)
(Editing by Andrew Hay)

FOREX-Euro up slightly against dollar in choppy trade