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FOREX-Dollar slips; euro lifted by bailout talk

Published 02/21/2010, 11:17 PM
Updated 02/23/2010, 09:38 AM
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* Dlr index off 8-mth highs, but looks bullish on charts

* Euro boosted by Der Spiegel report, but runs into selling

* Pound subdued, Aussie at 25-yr high vs sterling

By Kaori Kaneko

TOKYO, Feb 22 (Reuters) - The dollar slipped on Monday as investors reassessed the chances of a earlier-than-expected interest rate hike by the Federal Reserve, while the euro was lifted by speculation of a quick bailout for Greece.

A jump in Tokyo stocks and relatively resilient Chinese shares, which reopened after the week-long Luner New Year holidays, helped to lift yen crosses. But these gains were limited as investors refrained from building positions actively amid a lack of major economic events on Monday, traders said.

This week, all eyes will be on Fed chief Ben Bernanke's testimony in Congress on Wednesday and Thursday. Investors will be looking for clues on rates after the Fed surprised many by raising the discount rate last week.

"Comments from Bernanke are expected to be similar to ones by other Fed officials last week, playing down the possibility of an early hike in the fed funds rate," a trader at a Japanese bank said.

Currency markets took the discount rate decision as a signal the U.S. central bank was coming closer to tightening its benchmark rate despite assurances from Fed policymakers to the contrary. The move triggered a rally in the greenback as higher rates would increase return on dollar-denominated assets.

But tamer-than-expected consumer inflation data on Friday eased some rate hike expectations.

The dollar index eased 0.3 percent to 80.391, after rallying to an eight-month high of 81.342 on Friday. Still, daily charts indicate a bullish outlook for the dollar with the 55-day moving average pushing above the 200-day moving average, indicating a "golden cross" has been established.

The next resistance for the dollar index is around 81.46, which is its June 8, 2009 high and then around 81.90, which is a 50 percent retracement of the index's fall from 89.62 to 74.17 last year.

The dollar inched up 0.1 percent to 91.60 yen from late on Friday when it rose as high as 92.16 yen, its highest since early January.

Meanwhile, German weekly Der Spiegel reported on Saturday that Germany's finance ministry had prepared plans in which countries using the single currency would provide aid worth between 20 billion and 25 billion euros for debt-laden Greece. The ministry declined to comment on the report.

The report helped the euro start higher in Asia, with the single currency jumping to as high as $1.3655 from $1.3607 late on Friday. The European single currency was trading around $1.3646, up 0.3 percent on the day.

The euro has lost nearly 5 percent against the dollar since the start of the year on concerns about the fiscal health of Greece and other euro zone countries intensified.

Currency speculators raised net euro short positions to a record high in the week ended Feb. 16, and traders say any bounce in the single currency is merely positioning adjustments.

In contrast, long bets on the dollar rose to the highest levels since the week of Sept. 23, 2008, according to the Commodity Futures Trading Commission released on Friday..

The pound was up 0.2 percent at $1.5494 but remained under pressure, hovering just above a nine-month low of $1.5345 struck on Friday after a surprisingly big fall in British retail sales.

The Aussie was strong at a 25-year high against the pound, with the Australian dollar boosted at margin by talk of more rate hikes in coming months. (Additional reporting by Anirban Nag in Sydney; Editing by Chris Gallagher)

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