FOREX-Dollar drops broadly as data raises economic concerns

Thu Apr 25, 2013 9:52am EDT

Related Topics

* Euro up but ECB rate cut expectations may check gains
    * Dollar gains after U.S. jobless claims data
    * Sterling jumps to two-month high vs dollar after UK GDP
data
    * Data from Japan show investors remained net sellers of
foreign bonds

    By Julie Haviv
    NEW YORK, April 25 (Reuters) - The dollar dropped against
the euro and yen on Thursday as a recent slew of mostly soft
data raised concerns about the pace of economic recovery in the
United States, although many analysts contend the dollar remains
appealing.
    Orders for durable goods marked their biggest drop in seven
months in March, and, despite a fall in the latest weekly
jobless claims, the U.S. labor market is still sluggish and
retail sales have been weak, which could keep the Federal
Reserve's ultra-loose policy well in place. 
    The Federal Reserve will likely discuss the string of weak
data at its policy meeting next week. Should the U.S. central
bank acknowledge renewed weakness in the economy, analysts will
expect the Fed to maintain its easy money policy for some time.
    Any sign that the Fed plans to taper off its asset purchase 
program should buoy the dollar, however. The Fed's bond buying,
called quantitative easing, has long been negative for the
dollar as it is tantamount to printing money.
    With the state of the labor market is a key factor for Fed
policy, the dollar pared losses against the euro and yen after
data showed the number of Americans filing new claims for
unemployment benefits fell last week. 
 
    The data offered reassurance that the bottom is not falling
out of the labor market despite signs of slower growth.
    "Investors have recently grown skittish about the U.S.
economy losing steam following a run of soft data on the
consumer and manufacturing," said Joe Manimbo, senior market
analyst at Western Union Business Solutions in Washington D.C.  
    "All eyes now look ahead to Friday's first-quarter growth
figures," he said.
    Gross domestic product data on Friday is expected to show
the U.S. economy grew at a 3.0 percent annual pace in the first
quarter, accelerating from a 0.4 percent rate in the previous
period, though economists predict that has slowed to around 1.5
percent in the current quarter. 
    The euro last traded at $1.3038, up 0.2 percent on
the day and moving away from a low of $1.2954 struck a day
earlier after a German survey of business morale came in weaker
than expected. The euro also found support from signs that two
months of political gridlock in Italy may be coming to an end.
    While the euro gained against the dollar, it could run out
of steam amid strong expectations of an interest rate cut by the
European Central Bank next week. Senior sources involved in the
deliberations say momentum is building for action to help a
recession-hit euro zone economy. 
    "We are dollar positive, but we recognise it will not be a
straight line," said Neil Mellor, currency strategist at Bank of
New York Mellon. "We are seeing some softness in the dollar and
the data, and given what the Fed is saying, we expect it to stay
as a funding currency."
    
    STERLING RALLIES
    In contrast to U.S. data, a better-than-expected performance
by the British economy saw the pound jump more than 1 percent to
a two-month high against the dollar. Sterling also hit
a three-week peak versus the euro. 
    The UK avoided recession in the first quarter, wrong-footing
some bearish investors, including longer-term ones, who had
expected a weak number that would push sterling lower. The data
watered down expectations that the Bank of England will add to
its asset-buying program to underpin the economy.
    Sterling rose 1.3 percent to $1.5458, its strongest
since Feb. 19, and more than a cent above where it was trading
before the British GDP data was released. 
    The euro fell 1.1 percent to 0.8432 pence.
    While worries about the British economy have eased somewhat,
persistent concerns over a sustained U.S. recovery have thwarted
the dollar's rise past 100 yen - last seen in April 2009 - with
options barriers also standing in the way.
    Data on Thursday from Japan's Ministry of Finance on weekly
capital flows showed that Japanese investors remained net
sellers of foreign bonds, unloading a net 862.6 billion yen in
the week to April 20.  
    Investors have been closely watching flows data in recent
weeks for any indication that the Bank of Japan's massive
stimulus has pushed Japanese investors to seek higher returns
overseas. Major Japanese life insurers have expressed caution
about shifting funds into foreign bonds.
    But over a period of time, investment from large Japanese
investors is likely to pick up and some of that could spill over
into Europe and that could usher more yen weakness.
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