FOREX-Euro knocked down by German PMI data, dollar firms

Mon Mar 24, 2014 7:33am EDT

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(Adds fresh quotes, details)
    * Euro fails to latch on to gains made on French PMI data
    * Dollar buyers await more evidence of U.S. recovery
    * Yuan recovery helps Aussie

    By Anirban Nag
    LONDON, March 24 (Reuters) - The euro struggled on Monday,
hurt by signs that growth was slowing in the euro zone's largest
economy, Germany, though investors were also wary of buying the
dollar as they awaited more evidence of a U.S. recovery.
    The euro earlier jumped to a European session high after
surveys showed French business activity grew in March at its 
fastest in more than 2 1/2-years, beating forecasts for further
contraction in the bloc's second-largest economy. 
    The currency quickly gave up those gains after data showed
the German private sector slowed in March, disappointing
investors who were positioned for a better reading. 
    The euro jumped to $1.3827 from around $1.3798 before
the French data were released, pulling away from a recent
two-week trough of $1.3749. It fell back to $1.3775 after the
German data, which left it down 0.1 percent on the day.
 
    "It was a very mixed bag with France beating expectations
(and)... Germany coming in below forecasts," said Alvin Tan,
currency strategist at Societe Generale.
    "It doesn't look like the ECB will do anything. So the next
leg in the euro/dollar pair has to come from the dollar's side.
And for that we need U.S. data to outperform and investors to
price in expectations of Fed rate hikes."
    Partly supporting the euro has been the perception that the
European Central Bank is reluctant to ease monetary policy any
further. The euro's resilience prompted the president of the
European Council, Herman Van Rompuy, to complain on Friday that
the currency was too strong for euro zone exporters.
    Governing Council member Erkki Liikanen said on Monday that
the ECB keeps a close eye on the euro to see how it affects
inflation, ramping up efforts to talk down the currency.
[ID:nF9N0HR00R[
    The euro's losses saw the dollar index add 0.15
percent to trade at 80.213, not far from a three-week peak of
80.354 set on Thursday.
    Investors snapped up the dollar last week as they bet on a
U.S. interest rate hike early in 2015, after new Fed Chair Janet
Yellen surprised markets by raising the prospect of such a move.
    Traders said further gains for the dollar now depended on
the strength of coming data. Any acceleration in the U.S.
economic recovery is likely to bolster expectations of an
earlier normalisation of Fed policy.
    
    FX VOLATILITY FALLS
    The dollar was up 0.3 percent against the yen at
102.45 yen with buyers eyeing the March 19 high of 102.69 yen.
    Implied volatility  - a gauge how sharp
currency swings will be - is near multi-month lows. Analysts
said that suggested the yen, a safe-haven currency, is likely to
underperform.
    "Quiet markets and low volatility will support carry trades.
Over time, the yen should renew its status as the preferred
funding currency, given a central bank printing money
aggressively and BIS data showing yen cross-border lending still
growing," said Chris Turner, head of FX strategy at ING. "We
favour dollar/yen in a 102-103 range in the short term."
    A recovery in the Chinese yuan helped the Australian dollar
recover from lows. The Aussie, which is used as a more liquid
proxy by investors and speculators to back their views on China,
had dipped after a survey showed activity in Chinese factories
contracted again in March. 
    China's flash Markit/HSBC Purchasing Managers' Index fell to
an eight-month low of 48.1 in March from February's final
reading of 48.5. 
    The Aussie dropped to $0.9048 on the March number,
but it kept clear of last week's low of $0.8990 and later
drifted back up to $0.9110, 0.3 percent higher on the day. 
    

 (additional reporting by Hideyuki Sano; Editing by Larry King)
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