WSJ:WORLD FOREX:Euro Holds Most Gains As Funding Op Boosts Mood
-- Euro firm in Asia after major central banks announce coordinated dollar funding operation Thursday
-- Operation cuts into dollar demand, but euro-negative sovereign debt problems persist
-- Focus on Ecofin meeting later for cues on further steps to contain contagion
By Andrew Monahan
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--The euro remained firm in Asia on Friday, holding onto almost all the gains it posted Thursday after the European Central Bank and other major central banks announced coordinated efforts to pump dollars into European banks to avert a liquidity crisis.
Attention now turns to Europe's Economic and Financial Affairs Council (Ecofin) meeting later in the global day. Dealers and analysts say sentiment toward the euro could again quickly sour if European leaders fail to present clear plans to contain the fallout from the debt crisis in Greece and other fiscally weak European countries.
Thursday's dollar-funding operation may help soften the blow from the sovereign woes, but won't help clear up the underlying concerns over further contagion, analysts said.
"There is, of course, still caution over Europe," even though the coordinated funding move has for now cut into the dollar's recent strength to the benefit of the common currency, said Satoshi Tate, a senior dealer at Mizuho Corporate Bank.
UBS strategist Geoffrey Yu echoed that sentiment. "Risk aversion related gains in the dollar--as the market begins to hoard liquidity--will probably be more limited in scope," he said in a report.
Yet given the persistent fundamental debt problems that spawned the liquidity hoarding in the first place, "some White Knights for the euro zone would be a welcome addition," Yu added.
Investors should expect further palliative steps in the months ahead, as European authorities struggle to prepare the market for what many participants see as an increasingly likely outcome--an eventual Greek default, said Win Thin, foreign exchange strategist at Brown Brothers Harriman.
"This latest dollar funding scheme addresses the symptoms but not the illness," which is that Greece is insolvent, Thin said. "We fully expect policy-makers are preparing quietly for a Greek default, and would look for more and more preparatory measures in the coming months."
At 0450 GMT, the euro was at $1.3859 from $1.3875 late Thursday in New York, and at Y106.43 from Y106.45. The dollar was at Y76.79 from Y76.70. The ICE Dollar Index, which measures the greenback against a basket of currencies, was at 76.364 from 76.290.
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