RTRS: Euro on track for best weekly gain since February
(Updates prices, adds quotes, changes byline, dateline;
previous LONDON)
* Euro boosted by upbeat German Ifo survey
* Trade likely to be cautious ahead of French vote on Sunday
* Sterling rises to 5-mth high vs dollar
By Gertrude Chavez-Dreyfuss
NEW YORK, April 20 (Reuters) - The euro rose against the
dollar on Friday, on pace for its best weekly performance since
late February after a better-than-expected German business
sentiment survey, but gains could fade given concerns over
Spain's finances and uncertainty surrounding the French
presidential elections on Sunday.
Also supporting the euro was a Group of 20 official's
comment that the G20 would pledge to increase the International
Monetary Fund's resources by more than $400 billion to counter
the European debt crisis also supported the euro, analysts said.
Spanish 10-year government bond yields, however, topped 6
percent for a third time this week, which should keep the euro
constrained within the $1.30-$1.32 range.
"A lot of worries about Spanish yields rising have been
tempered by the stronger news out of Germany and the IMF," said
Steven Butler, director of FX trading at Scotia Capital in
Toronto.
"But there are still plenty of risks over the weekend such
as the French elections. For now though, equities are pointing
to the right direction and the market is looking to buy the euro
on dips."
In early New York trading, the euro was up 0.4
percent at $1.3187, having hit a session high of $1.3209, above
its 55-day moving average of $1.3207. Traders cited sizable
options expiries around $1.32 that were likely to check gains.
Below last week's high of $1.3212, the pair remains within
its three-week neutral range, and it would take a considerable
move higher - above $1.33 - before the longer-term bear trend is
called into question, said analysts from TD Securities.
"With this in mind, we look for selling opportunities in any
squeeze higher," TD said.
Germany's Ifo survey was the clear catalyst for the euro's
gains, with its business climate index rising to 109.9 in April
versus a forecast of 109.5. The report was the latest sign that
the euro zone's largest economy continued to outpace the bloc's
debt-ravaged southern states and highlighting the divergences
within the currency bloc.
"The Ifo surprised once again to the upside so we gained a
bit of intra-day volatility but the wider ranges are still very
tight," said Chris Walker, currency strategist at UBS.
"Spanish yields are back close to 6 percent and that's
clearly the focus of the markets in the longer term. The euro
could break below $1.30 if there is a big escalation in Spanish
yields or if French bonds take off."
Concerns about Spain's deficit, banking sector and poor
growth outlook have mounted in recent days, raising the
possibility that Spanish yields could rise to 7 percent, an area
many see as a tipping point into unaffordable borrowing costs.
A firm break below $1.30 would eventually open the door to a
test of the euro's 2012 low at $1.2624.
Most analysts, however, expect the euro to remain rangebound
ahead of Sunday's first round of the French vote, but financial
markets are nervous that the expected eventual winner, Socialist
Francois Hollande, may have a looser grip on government finances
than current President Nicolas Sarkozy.
The second round of the French election takes place on May
6, the same day as a Greek election and before an Irish
referendum on the fiscal compact on May 31, leaving the euro
vulnerable to a clutch of political risks.
That said, weaker-than-expected U.S. data on Thursday and
expectations of further monetary easing from the Bank of Japan
next week has left some investors reluctant to sell the euro
aggressively against the dollar or yen.
The yen hovered close to its lowest levels in 10 days
against the dollar after Governor Masaaki Shirakawa said the BoJ
would continue powerful monetary easing until a 1 percent
inflation target is in sight.
His words reinforced expectations the BoJ will ease policy
further at its April 27 meeting.
The dollar stood at 81.66 yen, bringing its April 10
peak of 81.87 yen into focus. The euro hit a two-week high of
107.96 yen, up 0.5 percent on the day and staging a
strong comeback from Monday's trough of 104.63 yen.
Sterling hit a 5-month high against the dollar of
$1.6122 after strong UK retail sales data doused any faint
expectations of more monetary stimulus by the Bank of England.
