FOREX-Euro hovers near 2-1/2 month low, dollar holds firm

Sun Mar 3, 2013 8:27pm EST

Related Topics

* Euro dips vs dlr, not far from Friday's 2-1/2 month low

* Single currency hampered by weak euro zone data

* Dollar index hovers near Friday's 6-month high

By Masayuki Kitano

SINGAPORE, March 4 (Reuters) - The euro hovered near a 2-1/2 month low on Monday while the dollar stayed close to a six-month high versus a basket of currencies as signs of improvement in the U.S. economy stood in stark contrast to a series of weak euro zone data.

Broad U.S. spending cuts that automatically kicked in on Friday and threatens to dampen economic growth did little to curb the dollar, which was supported by data released on Friday that showed a pick-up in U.S. manufacturing activity.

Data out of the euro zone painted a bleak picture, with business surveys released on Friday showing that European manufacturing appeared no closer to recovery in February, while official data showed that unemployment in the currency union hit a new high of 11.9 percent in January.

"The U.S. is not looking particularly good, but in comparison (to the euro zone) it's looking somewhat better," said Rob Ryan, strategist for RBS in Singapore.

The dollar index stood at 82.334, having hit a high of 82.509 on Friday, its strongest level in more than six months.

The euro slipped 0.1 percent to $1.3011, not very far from Friday's low of $1.2966 set on trading platform EBS, the single currency's lowest level since Dec. 11 and its weakest in more than 2-1/2 months.

"A recent characteristic of the euro is that it seems to be increasingly traded on the back of fundamental economic data such as the unemployment rate, production, and GDP figures," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.

The single currency has retreated over the past month since hitting a high of $1.3711 on Feb. 1, and has come under added pressure after an inconclusive election in Italy in late February raised the risk of prolonged political instability in the euro zone's third biggest economy.

The single currency now looks vulnerable on the daily Ichimoku chart, a popular technical analysis tool. The euro fell below the bottom of the daily Ichimoku cloud at $1.3085 and closed below that level on Friday, in a bearish technical signal.

Against the yen, the dollar eased 0.1 percent to 93.57 yen .

Expectations of more aggressive monetary easing by the Bank of Japan had prompted investors to push the yen down to a 33-month low of 94.77 yen per dollar last Monday, and many traders expect the Japanese currency to retain a downward bias.

The Japanese government last week nominated Asian Development Bank President Haruhiko Kuroda, an advocate of aggressive monetary policy action, as the next BOJ governor to succeed Masaaki Shirakawa. Shirakawa will step down later in March.

Speaking at a confirmation hearing in parliament on Monday, Kuroda said an end to deflation in Japan will help Asian economies and the global economy. Kuroda added that the BOJ must take whatever steps necessary to achieve 2 percent inflation as soon as possible.

The yen showed limited initial reaction to Kuroda's comments.

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