FOREX-Dollar weakness keeps euro off three-week lows

Thu Apr 25, 2013 4:27am EDT

Related Topics

* Dollar index down 0.3 percent
    * Euro up, but gains limited on expectations of rate cut by
ECB
    * Japan MoF data shows Japan capital outflow last week

    By Anirban Nag
    LONDON, April 25 (Reuters) - The dollar was weaker against
the euro and yen on Thursday, hurt by a batch of soft data that
have raised concerns about the pace of economic recovery in the
United States.
    Gains for the single currency were likely to be limited by
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 euro
zone economy which has slipped back into recession.
 
    Still, the euro gained 0.2 percent on Thursday to $1.3035
, moving away from a low of $1.2954 struck a day earlier
after a German survey of business morale came in weaker than
expected. There was support from signs that two months of
political gridlock in Italy was coming to an end.
    The dollar index, which measures it against a basket
of currencies, fell 0.3 percent to 82.808, having risen to
83.190 on Wednesday, its highest since April 4. It was down 0.2
percent to 99.20 yen.
    "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."
    Orders for durable goods marked their biggest drop in seven
months in March, the U.S. jobs market has remained sluggish and
retail sales have been weak, factors which could keep the
Federal Reserve's ultra-loose policy well in
place. 
    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 previous
period, though economists predict that has slowed to around 1.5
percent in the current quarter. 
    "Markets overall have been focused on earnings, but poor
data in the U.S. is raising concerns about the U.S. outlook,"
said a foreign exchange market advisor at a Japanese firm in
Tokyo.
    
    100 YEN STILL SOME WAY
    The concerns over the 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 unveiled on April 4 has pushed Japanese investors to
seek higher returns overseas, which would usher in further yen
weakness. 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
to euro zone assets.
    "There is also strong demand for sovereign bonds of
countries like Spain and Italy, and that could also support the
euro," said Masashi Murata, senior currency strategist at Brown
Brothers Harriman in Tokyo.
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