Dollar hits six-week lows, euro zone periphery in vogue

LONDON Mon Feb 17, 2014 10:43am EST

1 of 6. Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange February 5, 2014.

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LONDON (Reuters) - The dollar hit 6-week lows on Monday as recent weak U.S. data cast doubt on the pace of monetary tightening, while prospects for a new reforming government in Italy and better euro zone growth boosted the bloc's periphery.

World stocks .MIWD00000PUS rose to 3-1/2 week highs, helped by encouraging news on Chinese lending, but volumes were thin due to a U.S. market holiday.

A run of weak U.S. data, including an unexpected fall in January manufacturing output on Friday, has caused some investors to revise their expectations of how fast the Federal Reserve will scale back stimulus and tighten monetary policy.

"There's been a very patchy data outlook for the past six weeks to two months and expectations of a rate rise from the Fed have been curtailed," said Peter Kinsella, strategist with Commerzbank in London.

Higher-yielding emerging markets .MSCIEF, which have suffered as U.S. investors bring their money home in anticipation of tapering, also rose to 3-1/2 week highs.

Data at the weekend showed Chinese banks disbursed the highest volume of loans in any month in four years in January, a surge that suggests the world's second-biggest economy may not be cooling as much as some fear.

The dollar hit a six-week low .DXY against a basket of currencies and three-week lows against the euro following recent upbeat euro zone economic readings. It edged off those lows by 1500 GMT, to 80.149 and $1.3704 per euro.

It rose against the yen after data showed Japan's economy grew just 0.3 percent in the fourth quarter, confounding forecasts of a 0.7 percent gain.

In Europe, the mood was upbeat after Italian President Giorgio Napolitano asked center-left leader Matteo Renzi to form a new government after former Prime Minister Enrico Letta resigned last week.

Renzi has promised a radical program of action to lift Italy out of its most serious economic slump since World War Two, but will have to deal with the same unwieldy coalition which failed to pass major reforms under its previous leader.

Ratings agency Moody's lifted Italy's ratings outlook to stable from negative late on Friday, reinforcing optimism that a new government will be able to push through the reforms.

"Investors are quite sanguine about the economic and political situation in peripheral Europe, and that's a very positive signal," said David Thebault, head of quantitative sales trading at Global Equities. "Ten-year bond yields continue to fall across the board, a sign of stability which has prompted a lot of investors to come back."

The yield on Italy's benchmark 10-year government bond hit an eight-year low of 3.622 percent, and Spanish yields were also trading at eight-year lows.

Euro zone finance ministers meet in Brussels on Monday.

European stocks .FTEU3 also reached 3-1/2 week highs, and Italy's FTSE MIB .FTMIB equity index, which outperformed with a 1.6 percent gain on Friday, gained 0.3 percent.

Safe-haven Bund futures fell 4 ticks.

The lower dollar spurred gold to a fresh three-month peak at $1,329.55 before it trimmed gains to $1,327.50.

In energy markets, Brent oil futures dipped 1 cent to $109.05 a barrel, while U.S. crude firmed 48 cents to $100.78.

Supply disruptions and a severe winter across North America that has boosted heating demand were also supporting oil.

(Additional reporting by Wayne Cole in Sydney, Blaise Robinson in Paris and Laurence Fletcher in London; Editing by Toby Chopra)

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Comments (8)
nose2066 wrote:
I am puzzled by the phrase “new loans” in the remark about Chinese banks making the highest dollar amount of “new loans”. Does that mean that the total outstanding credit increased by the record amount? Or did the principle and interest on old loans get paid off by “new loans”?

Feb 16, 2014 8:16pm EST  --  Report as abuse
bertanderson wrote:
A lot of mixed data and confusion. I always have difficulty understanding and believing data from China. I see the percentages beating overall but it doesn’t really tell me if things are good or softening. I wish someone would report on the real important companies in aggregate…IBM, CAT, GE, GM, Chevron, Walmart etc…. How is the economy doing????? based on the big indicators in each sector.

Feb 16, 2014 9:37pm EST  --  Report as abuse
Vuenbelvue wrote:
New loans in China – Previous articles said loans are new. Communist leadership told Bankers to be aggressive because of slow economic growth
IBM and Caterpillar both down in Sales especially China. Articles suggest IBM left with tail between their legs selling off Motorola and software to Chinese. Caterpillar replaced by other equipment giants.
GM – Sales in China reported to be very nominal as the costs of cars are so high. In USA you have to pay big downs and 6-7 year notes. Higher the cost of the car higher the cost of car insurance and sales taxes. Big investment.
Chevron- Retail prices are always the highest of the high and they aren’t invited by the Texas Oil Cartel to explore the Balken Oil fields. Cartel to start exporting US energy so energy independence is now short lived.
Walmart – All articles say sales are flat. Sam’s cutting large number of lower management and inside stocker’s.
All CEO’s provide cheaper products and raise the prices from last year so have boom years and make major bonuses. One retail store looks like another. Radio shack closing 500 stores. Mass closing of other box retailers projected.
Dollar falling, Detroit bankruptcy upsetting bond market. Puerto Rico $70 billion in debt and buyers still buying new debt for higher interest rates.
Government spending keeps her going. All is quiet on the home front.

Feb 17, 2014 9:40am EST  --  Report as abuse
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