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FOREX-Euro gains on German court ruling but ECB ahead

Published 09/07/2011, 09:20 AM
Updated 09/07/2011, 09:24 AM

* Euro gains on relief at German court ruling

* ECB on Thursday could still push euro lower

* Swedish crown gains amid search for safety

(Adds details, updates prices, adds quote, changes dateline, previous LONDON)

NEW YORK, Sept 7 (Reuters) - The euro rose against the dollar on Wednesday after Germany's top court rejected lawsuits aimed at blocking participation in euro zone bailouts, though the single currency remained vulnerable ahead of the European Central Bank's rate decision on Thursday.

Slowing global growth, easing inflation and mounting euro zone debt concerns are likely to see the ECB flag a pause in its rate tightening cycle at its governing council meeting, with an outside chance it could even sound dovish.

The German court decision "is an excuse to book some profits from the last few days but it's not really a game changer," said Omer Esiner, chief markets analyst at Commonwealth Foreign Exchange in Washington.

The euro was last up 0.3 percent on the day at $1.4042

Although the court's decision was seen as positive for the single currency, the court also said parliament must have a bigger say before aid is granted, potentially making a solution to the euro zone debt crisis more cumbersome. [ID:nL5E7K70Q9]

"It could hamper (German) participation going forward," said Esiner. "It's a double-edge sword."

Finance Minister Wolfgang Schaeuble said that the court left it free to the government to agree to aid agreements in the euro zone with other countries and inform parliament afterwards. [ID:nB4E7JN02O].

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Data showing German industrial output rose more than expected in July and a rise in equities supported the euro. But analysts said it could struggle ahead of the ECB decision and sink back under its 200-day moving average around $1.40194 at current prices.

Traders said it had support above $1.40 after failing to make a sustained break below there on Tuesday, but said investors were still inclined to sell on rallies. That left it vulnerable to a drop towards the July 12 low at $1.38376.

The euro retained hefty gains made against the Swiss franc on Tuesday after the Swiss National Bank said it would enforce a limit of 1.20 francs to the euro by buying foreign currencies in unlimited quantities. It was last steady at 1.20722 francs

SWEDISH CROWN, AUSSIE RISE

The Swedish crown rose to a three-month high

Analysts said the market was increasingly seeing the Swedish currency -- along with Norway's crown -- as a safe alternative to the euro after the SNB curbed appetite for the franc.

"There is a tremendous amount of desperation around. Everybody is asking where the new safe haven is," said Sebastien Galy, currency strategist at Societe Generale.

"The Swedish crown is very attractive for a euro-based investor because the ECB is starting to look like it may cut rates. Only a few days ago the crown was trading below its short-term fair value based on rate differentials. Now people are rushing into it."

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Commodity currencies also rose, with the Australian dollar up 1.2 percent at $1.0618

Against the yen, the dollar was down 0.6 percent at 77.217 yen

Traders said the yen was supported by the Bank of Japan's decision to keep policy unchanged. Some market players had expected Japan to take measures to stem the yen's strength after Tuesday's move by the SNB.[ID:nL3E7K71B4][ID:nL3E7K70EE] (Reporting by Nick Olivari, Additional reporting by Jessica Mortimer and Nia Williams in London, Editing by Chizu Nomiyama)

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