Wednesday, October 17 07:23:06
The euro hit a one-month high against the dollar today after Moody's affirmed Spain's investment grade rating, assuaging widespread fears of a downgrade to junk status for the euro zone country. Moody's action removed the most immediate risk to Spain ahead of its bond auctions due on Thursday. The euro rose to $1.3125, its highest level since mid-September, but traders were cautious about the single currency's near-term outlook, with some saying it may stay stuck in range trading for now. The euro was last up 0.3 percent from late U.S. trade at $1.3091.
"You have to wonder whether it makes sense to buy the euro based just on this," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, referring to Moody's decision to keep Spain at Baa3, one notch above junk status. "I think the euro in the end will stay in a $1.28 to $1.32 range, I don't think you can get too optimistic at this point," he added. The single currency has been supported in recent weeks by hopes that Spain will eventually request a bailout, a move that would open the way for the European Central Bank to buy Spanish debt and help lower Madrid's borrowing costs.
The exact timing of such an aid request, however, remains unclear. The euro is likely to face firm resistance near $1.3173 ahead of a forthcoming European summit, said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore, referring to the euro's four-month high set in September.
"Our expectation is...that the European summit yet again will be a disappointment and then it will go back down," he said, adding that Spain seemed unlikely to make a formal aid request at the summit. A summit meeting of European leaders will be held in Brussels on Thursday and Friday. Investors had bought the euro the previous day on hopes Spain may be close to seeking a bailout and following a survey showing German analyst and investor sentiment had risen for a second month in a row in October.
Traders cited a Bloomberg report about two German lawmakers saying Germany is "open to Spain seeking a precautionary credit line from Europe's rescue fund" as positive for the euro. However, a senior German lawmaker said the report had "overinterpreted" comments he made on the issue and he had not been referring to Spain. Helped by such factors and the Moody's announcement, the euro touched a one-month high against the yen at 103.51 yen earlier on Wednesday. The single currency later trimmed its gains and changed hands at 102.95 yen, little changed on the day. ( C) Reuters