Euro lower vs. dollar ahead of Bernanke speech

August 30, 2012 Reuters

Japanese 10,000 yen notes (L) featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, $100 notes, featuring an image of Benjamin Franklin, and Chinese 100 yuan notes, featuring an image of former Chinese leader Mao Zedong, at the main office of the Korea Exchange Bank are seen in this picture illustration taken in Seoul October 22, 2010. REUTERS-Truth Leem

August 30, 2012, (Reuters) – The euro declined for the second straight day against the dollar on Thursday as investors pared back expectations Federal Reserve Chairman Ben Bernanke will hint at near-term monetary easing in a much-awaited speech on Friday.

Currency moves were limited as investors were reluctant to place bets ahead of key events, which also include a European Central Bank policy meeting next Thursday, the U.S. August jobs report next Friday and a Fed policy meeting on September 12-13.

Hopes for further easing had grown since Fed meeting minutes last week showed policymakers could act “fairly soon”. The euro also gained after European Central Bank chief Mario Draghi canceled his appearance at the Jackson Hole meeting on Friday, fueling hopes the ECB will soon offer help to Spain and Italy.

Uncertainty is high and investors and economists have become far more skeptical that the Fed will announce a new round of bond purchases at its September meeting, according to Reuters polls over the last week.

The sentiment was echoed in comments from Dennis Lockhart, the head of the Federal Reserve Bank of Atlanta, who told CNBC on Thursday it will be a “close call” when policymakers meet next month to decide whether to ease policy more.

“I think we’re going to hear pretty much what we’ve heard from chairman Bernanke, which will probably be dollar positive,” said Matthew Lifson, senior trader and analyst at Cambridge Mercantile Group in Princeton, New Jersey.

The euro fell 0.1 percent to $1.2509 with the session low at $1.2486. It had earlier hit a session high of $1.2563, within sight of last week’s high of $1.2589. A rise above that level would mark the euro’s strongest level in eight weeks.

U.S. economic numbers over the last two weeks have largely come in a little better than forecast. Data on Thursday showed U.S. consumer spending rose by the most in five months, while the number of Americans filing new claims for jobless benefits was unchanged last week.

Analysts said policymakers will also want to wait for August jobs data, which comes just ahead of the Fed’s next policy meeting.

“Because of those jobs numbers, we don’t think Bernanke is going to commit to anything, rather just to reiterate his outline of what they can provide,” said Eric Viloria, senior currency strategist at in New York. “In the near term, if he doesn’t say anything new, we could see some dollar strength.”

Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York, said with the press replete with stories not to expect too much from Bernanke, “expectations look to have been set suitably low.

“That suggests that the risk sell-off on Bernanke adding very little to the future QE outlook is likely to be very modest,” he wrote to clients.

Earlier, the euro also drew support from comments by Premier Wen Jiabao that China is prepared to buy more EU government bonds, in the strongest sign of support for its biggest trading partner in months.

Italy sold all it wanted of a new 10-year bond at auction on Thursday, with yields well under 6 percent, helped by expectations that the European Central Bank will act soon to ease borrowing costs for weaker euro zone members.

The dollar dipped 0.1 percent to 78.61 yen while the euro slipped 0.2 percent to 98.36 yen.

Higher-yielding and commodity-linked currencies fell on concerns about a flagging Chinese economy, which would curb demand for commodities such as steel, iron ore and copper. The Australian dollar fell to a five week low.

The Australian dollar was last down 0.4 percent at $1.0305.

(Reporting by Nick Olivari and Wanfeng Zhou; Editing by Chizu Nomiyama)