FOREX-Dollar dips, eyes on central banks

Mon Apr 7, 2014 3:58am EDT

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(New throughout, changes dateline from previous TOKYO/SYDNEY)

* Yen edges higher as BOJ begins two-day policy meeting

* Dollar nurses modest losses as jobs report disappoints some bulls

* Little data to go on this week, eyes on central bank officials

* BoJ, IMF meetings in focus

By Patrick Graham

LONDON, April 7 (Reuters) - The dollar lost more ground against the yen and dipped against the euro on Monday, jobs data on Friday disappointing those who had bet on a number strong enough to break this year's tight trading ranges.

A stronger dollar was to have been this year's big play on major currency markets, according to many banks and investment houses in January, and there were signs last week the U.S. currency was finally set to break out higher.

But non-farm payrolls on Friday was judged short of the decisive evidence of a strengthening economic recovery that would firm up expectations of higher U.S. interest rates and strengthen the dollar in the months ahead.

In that context, even the signs last week that the European Central Bank is closer to outright money-printing have failed to shift the U.S. currency significantly higher against the euro.

"At the end of the day we had a number that was right in the middle; enough to keep expectations of tightening by the Fed right where they were," said Simon Derrick, currency strategist with BNY Mellon in London.

"The amazing thing to me, however, is how much people have just looked at the promise of quantitative easing by the ECB and just shrugged."

The euro did take a hit last week from signs at the ECB meeting that German resistance to outright money-printing is weakening. But on Monday it was trading at $1.3715, up 0.1 percent on the day and in the upper half of the 5 cent range it has held in this year.

The yen had lost almost 3 percent against the dollar in the two weeks before Friday's payrolls numbers. It has gained more than 1 percent since. At 103.14, it was up 0.2 percent in early European trading compared to Friday's U.S. close.

There is still the prospect of more money-printing to come in Japan itself, however, and Monday's moves were limited by caution as the Bank of Japan began its two-day policy meeting.

"There's some consolidation, given it's a Chinese holiday so liquidity is thinner, and directional leads are lacking," said Sue Trinh, currency strategist at RBC Capital Markets.

"Not much is expected from the BOJ, though never say never."

ABENOMICS

BOJ Governor Haruhiko Kuroda might come under pressure to take more easing action to support the economy after Japan hiked its sales tax this month.

Data scheduled for early Tuesday is expected to show Japan's current account balance probably swung back to a surplus for the first time in five months in February, helped by overseas investment returns and slowing import growth.

Similarly, in Europe a raft of ECB speakers this week will flesh out what markets understand about the discussions at last week's meeting in Frankfurt.

The running assumption is that there has been a change in tone, but the jury is still out on whether the bank will walk the talk and ease policy further to weaken the euro and prod growth and inflation higher.

"If you look at (ECB President Mario) Draghi's comments in the past month, the one clear theme is that he is concerned over the euro," Derrick said.

"And if QE has shown us one thing over the past decade, it is that it will work to weaken the currency. It is extraordinary in that context that we have seen so little reaction."

A raft of senior officials will be in Washington at the end of the week for the IMF's spring meetings. Several ECB policymakers are due to speak on Monday.

German newspaper Frankfurter Allgemeine Zeitung said the ECB had modelled the effects of buying a trillion euros of assets to ward off deflation, a day after the head of the ECB said radical policy action might be needed. (Additional reporting by Lisa Twaronite and Ian Chua, Editing by Angus MacSwan)

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