Currencies
* U.S. economy improved in May, Fed’s Beige Book says
* Thursday’s ECB meeting in focus
* Chinese exports said to rise, easing global growth fear (Adds details, updates prices)
By Steven C. Johnson and Vivianne Rodrigues
NEW YORK, June 9 (Reuters) – The euro edged higher versusthe dollar on Wednesday, boosted by options-related demand andrenewed market hopes that Europe’s debt crisis may not put thebrakes on global growth.
Talk that Chinese exports in May likely grew sharplybolstered confidence, while Federal Reserve Chairman BenBernanke said the U.S. recovery was on solid footing. Fordetails, see [ID:nN09137822] and [ID:nTOE65805R]
Traders took the opportunity to take profits on the euro’srecent slide, which took it below $1.19 on Monday to its lowestlevel since early 2006. European stocks closed higher, whileU.S. stocks reversed earlier strong gains in late trade. Thepremium investors demand to hold Spanish and Italian bonds overbenchmark German bunds fell [GVD/EUR].
Few were ready, however, to declare the euro’s woes over.
Banks’ overnight deposits at the European Central Bank hita record on Wednesday, highlighting widespread worries aboutthe health of the financial system. [ID:nLDE6580FO]
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In late afternoon trading in New York, the euro waschanging hands at $1.1983 EUR= , up 0.1 percent. It hit$1.1876 Monday, its lowest since March 2006. The euro has shedabout 16 percent against the dollar this year.
Steven Butler, head of FX trading at Scotia Capital, saidwhile the euro in the short term could reach $1.2110, hislonger-term view is more pessimistic.
“I still think there’s downside,” he said. “And overall,this move over the past few months has seen new lows hit, thenconsolidation and a nasty bounce back before we make anotherassault downward.”
Traders said option expiries at $1.1900 and $1.1850 addedto euro demand as investors bought the currency to protecttheir positions.
Against the yen, the euro reversed earlier gains and fell,sliding 0.4 percent to 109.11 yen EURJPY=. It hit aneight-year low beneath 109 yen on Monday.
The euro hit a record trough below 1.38 Swiss francsEURCHF=R but later recovered. The Swiss National Bank hasbeen intervening since 2009 to limit franc strength, buttraders have speculated that further intervention may provefutile given the euro’s woes.
BEIGE BOOK
The dollar fell against the yen as U.S. stocks reversedgains and fell late in the trading session. The greenback waslast 0.5 percent lower at 91.08 yen JPY= .
U.S. economic activity improved nationwide last month, butworries about Europe’s debt crisis dented confidence, theFederal Reserve said in its Beige Book collection of anecdotalreports. [ID:nWAL9HE68F]
Meanwhile, analysts said the market was still betting thateuro zone economic growth will lag growth in the United Statesas heavily indebted countries are forced to slash spending inexchange for access to emergency aid. The ECB is expected tokeep interest rates at a record low when it meets on Thursday.
Kathy Lien, director of research at GFT Forex, said marketswill watch on Thursday for clues whether the ECB plans newefforts to support troubled euro zone countries.
The ECB began buying government bonds last month to cutsome countries’ borrowing costs.
What happens “could determine whether the euro makes a moveback toward $1.19 or sustains gains above $1.20,” she said.
The euro was also helped on Wednesday after sources saidthat Chinese exports grew 50 percent in May from a yearearlier, which analysts said helped ease fears that Europe’sdebt crisis would slow global growth. Europe is one of China’slargest export markets.
Some also said European efforts to cut budget deficits willbe constructive for the euro in the long run. (Additional reporting by Neal Armstrong in London; Editing bytktk)
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