FOREX -Dollar squeezed, hits 2-week low against the euro

Thu Feb 13, 2014 7:53am EST

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By Patrick Graham

LONDON, Feb 13 (Reuters) - The dollar fell to a two-week low against the euro and lost more than half a percent against other major currencies, the latest sign of its failure to launch this year which has disappointed many investors.

The Australian dollar, looking in better shape this month after a 10 percent slide since October, dived almost 1 percent after an unexpectedly weak domestic jobs report. Sweden's crown also fell on the back of similarly soft data.

A strong dollar against its major currency peers was a central bet for many banks at the start of this year, convinced that a steady reduction in Federal Reserve bond-buying would drive up dollar interest rates and draw in capital.

The failure of 10-year Treasury yields to get closer to 3 percent, however, has left many disappointed and the major currency markets generally somewhat bereft of direction.

"Today's move looks mainly like a squeeze of some of those positions put on yesterday," said Paul Robson, strategist with RBS in London.

"Some people clearly thought they could jump on the comments about ECB rates but (more falls for the euro) failed to materialise so those positions have been squeezed out again."

One explanation for the generally flat performance is that a sell-off in emerging markets, the other side of a shift in global capital due to the Federal Reserve reining in monetary stimulus, has benefited other currencies as much as the dollar.

"The dollar's safe haven status has been eroded and as equities come off, the dollar index is also a bit lower," said Peter Kinsella, strategist with Commerzbank in London.

The dollar index was down 0.4 percent at 80.494. It fell 0.53 percent against both the yen and euro to 101.99 yen and $1.3660 respectively.

Weekly U.S. jobless claims and January U.S retail sales data due later on Thursday may offer further direction but Robson said it looked increasingly likely that any broader move higher for the U.S. currency will not now come until later in the year.

"If 10-year yields push to 3 percent then we may get a move," he said. "But we think the Fed is still a long way from actually tightening rates and that's why we were reticent about going long against sterling for example at the start of the year. That has been proved right."

Dealers saw support for the dollar around 101.90 yen and it held above that level in the European morning. Some said there were Japanese exporters orders to buy yen at 102.50-70 yen.

JOBS SHOCK

The Aussie was a big loser among major currencies in the last quarter of 2013, hit by slowing growth in China and a central bank campaign of rate cuts aimed at weakening the currency and prodding the economy back into life.

That move had seemed to be nearing an end earlier in February when the Reserve Bank dropped its easing bias and scaled back its verbal campaign against the dollar.

The jobs data on Thursday, however, bucked expectations for a net gain of 15,000 jobs in January, instead showing another 3,700 Australians out of work. Unemployment rose to 6.0 percent, the highest since July 2003 and above forecasts.

The Aussie fell as much as 1.1 percent, before recovering to trade at $0.8949.

UBS analyst Gareth Berry argued that, with the Fed halting the flow of dollars that has propped up the Aussie over the past year, the Australian currency would now feel more impact from the two full percentage points cut off base rates since the end of 2011.

"There was minimal currency reaction to the first 175 basis points worth of rate cuts," he said. "Now the shoe is very much on the other foot, as the market reaction to the soft employment data overnight demonstrated. We look for the Aussie to drop towards $0.86 over the next three months."

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A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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