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FOREX-Euro dips on uncertainty over Greek debt options

Published 05/19/2011, 04:31 AM
Updated 05/19/2011, 04:48 AM

* Euro eases vs dollar on uncertainty over Greece

* Traders cite media reports on ECB restructuring concerns

* Euro trapped below 55-day moving average

By Jessica Mortimer

LONDON, May 19 (Reuters) - The euro dipped against the dollar on Thursday on uncertainty about the implications of a possible Greek debt restructuring, with traders saying policymaker opposition might lead to further declines.

Traders pointed to a report that quoted European Central Bank head Jean-Claude Trichet as saying the bank would not accept Greek bonds as collateral should there be a decision to lengthen the term of Greece's debt repayments. The same view was attributed to policymaker Juergen Stark by a bank spokesman. [ID:nFLAJGE7NK]

In response, the euro held below its 55-day moving average at $1.4296, though sovereign bids at $1.4220-30 were expected to keep it comfortably above a seven-week low of $1.4048 hit on Monday. Further uncertainty over euro zone debt could pull it back down towards this level again, traders said.

The dollar was also soft after Federal Reserve minutes were interpreted as suggesting U.S. monetary policy tightening was still some way off, even as some officials saw a rise in inflation risks. [ID:nN18279205]

"We are seeing a consolidation phase after the heavy liquidation of short dollar positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.

But he added that for the euro to make gains the market would need to see euro zone data or comments from European Central Bank officials that would point to further rises in euro zone interest rates, he said.

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The euro was down 0.1 percent at $1.4224

"There's a sense that when it comes to Greece's debt crisis there's still some time left to deal with it," said Minori Uchida, a senior analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.

"It's difficult to sell the euro beyond $1.40 now, when there's talk that the European Central Bank could raise rates in July," he said.

The dollar was steady against a basket of currencies <.DXY> at 75.503, below a high hit on Monday of 76.001.

Perceived higher-risk commodity-linked currencies gained slightly against the greenback, with the Australian dollar

The dollar hit a three-week high against the yen

The euro was down 0.1 percent at 116.24 yen

"Japanese data overnight have been weak and the sovereign debt crisis in the euro zone continues to cloud the outlook for risk," Rabobank analysts said in a note.

"Although position adjustment over the past couple of week has no doubt curbed exuberance, the market is likely to remain reluctant to load up heavily on risk just yet."

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(Additional reporting by Hideyuki Sano in Tokyo; Editing by John Stonestreet)

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