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Euro steady ahead of ECB meeting

Monday, September 03 09:49:06

The euro was steady against the dollar today, drawing support from expectations the European Central Bank will take bold steps this week to stem the debt crisis, although flagging growth prospects were likely to limit gains. The growth-linked Australian dollar fell to fresh six-week lows against both the dollar and the yen as investors sold up amid more signs of weakness in the Chinese economy and a set of weak Australian data.

The euro stood at $1.2575, flat from levels in late U.S. trade and off an eight-week peak of $1.2638 set on Friday after Federal Reserve chief Ben Bernanke's speech fanned expectations of further stimulus to revive growth. Traders cited reported option barriers at $1.2650, with decent resistance at the July 2 high of $1.2681.

The euro has also been underpinned by expectations the ECB will soon unveil a bond buying programme, probably at its policy meeting on Thursday, aimed at lowering borrowing costs for peripheral euro zone countries like Spain and Italy. That is expected to lower the risk premia - or the additional cost over low-risk securities - on holding European assets as well as the euro.

"While the euro could rally to the $1.2670/80 region as short positions are trimmed, we are likely to see investors sell into it as there is a great of deal of uncertainty about what the ECB may announce on Thursday," said Jeremy Stretch, head of currency strategy at CIBC World Markets. ( C) Reuters