FOREX-Euro propped up by periphery, data hits pound and Nordics

Fri Jan 10, 2014 7:44am EST

Related Topics

* Demand for euro zone strugglers' bonds supports euro

* French and Spanish data supportive

* Norwegian crown, pound fall after data

* Investors to take lead from U.S. jobs report

By Patrick Graham and Laurence Fletcher

LONDON, Jan 10 (Reuters) - Demand for euro zone peripheral government bonds kept the euro away from a one-month low against the dollar on Friday before jobs data seen as crucial to the U.S. currency's outlook.

A handful of other G10 currencies were pushed around by divergent economic data in early trade; the pound and the Norwegian crown suffered while the Swedish crown recovered a chunk of this week's losses.

A key theme at the start of 2014 is the divergence of outlooks on monetary policy, from which the pound and dollar have both, on balance, benefited at the expense of the euro.

European Central Bank President Mario Draghi added to pressure on the euro on Thursday by firming up the bank's promise to take more action to lower market borrowing costs if need be.

But while the euro zone economy still looks fragile, government finances and banking in the bloc broadly look far healthier than six months ago, and players are starting to trade heavily on improvement in its debt-laden southern half.

"There's definitely a strong repricing of the euro going on," said Arne Lohmann Rasmussen, head of FX research at Danske Bank in Copenhagen. "People want to take part in the very strong performance and carry being provided by southern Europe."

The euro was last down just 0.06 percent on the day at $1.3598 having hit a low of $1.3548 hit on Thursday.

Portuguese bond yields slipped further to near seven-month lows on Friday after Lisbon's first 2014 debt sale drew solid demand on Thursday and before of review of the country's credit ratings outlook later in the day.

Data also showed the French economy - seen by many as a weak link in the currency bloc - grew 0.5 percent in the fourth quarter, while Spanish and French industrial output figures were robust.

"There's an anticipation of European data on the strong side," said Hans Redeker, head of global currency strategy at Morgan Stanley.

"You (also) have some corrective activity," he said, adding that investors who sold the euro after Draghi's comments would be more concerned with Friday's U.S. jobs data.

PAYROLLS

The dollar has made a positive start to 2014, buoyed by the prospect of the U.S. Federal Reserve steadily slowing the flood of cheap dollars coursing through the market while central banks in Japan and Europe consider loosening policy further.

Whether that happens will depend on data from the United States, and the approach Janet Yellen, regarded as a dove set to be confirmed as the Fed's new chairman, takes to policy.

"The jury is still out on the euro/dollar this year," said Neil Mellor, currency strategist with Bank Of New York Mellon.

"All it would take is Janet Yellen saying the Fed at some stage could call a halt to tapering (of bond-buying) and the whole situation could turn around. And I think she will be very keen to ensure that the recovery is bedded in before the Fed withdraws all its stimulus."

Economists polled by Reuters forecast U.S. employers added 196,000 jobs in December, down from 203,000 in November, while the jobless rate was likely to hold at a five-year low of 7.0 percent.

But dealers said that after strong ADP jobs data early in the week, the market was already expecting a higher number.

"We think it would take a figure of around 250K to move the market (higher)," said Danske's Rasmussen.

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