FOREX-Swedish crown drops on rates message, dollar recovers
* Dollar gains foothold after biggest one-day fall in months
* Crown hit by signs central bank to cut rates
* Dealers say central bank reserve moves supporting euro
* Dollar index edges up but still near 3-week low
LONDON, April 9 (Reuters) - The Swedish crown was the major mover on developed currency markets on Wednesday, falling half a percent against the euro after the Riksbank signalled it was moving closer to cutting interest rates.
Dealers from Scandinavian banks said the central bank's lowering of its projected path for rates opened the way to a push towards 9.05 crowns per euro, although there would be some caution ahead of inflation numbers due on Thursday.
In a listless morning's trade for other major currencies, which saw the dollar recover slightly from three days of strong losses against the yen, the crown weakened past 9 crowns per euro to 9.0027.
"This message from the Riksbank has changed the picture and the euro will probably extend upward from here," said the head of foreign exchange with one Scandinavian bank, asking not to be named.
"Inflation tomorrow is the key now. It seems unlikely that we'll get a strong number - the data set implies that inflation will be fairly weak. I think around 9.03 would be first resistance for more gains for the euro."
A dealer with another of the bigger Scandinavian banks said the euro could even stretch as high as 9.10 if Swedish inflation undermined the crown further, though he said stronger buyers would probably emerge if it reached 9.05 crowns per euro.
While the Swedish economy is growing, inflation is very low and policymakers' struggle to deal with that at a time when household borrowing is already very high has underpinned a 2 percent fall for the crown since mid-March.
"If we continue to see more bad economic news out of Sweden then of course its hard to say," the dealer said. "But I think the Riksbank has given us room to push (the euro) another five to seven figures higher depending on inflation tomorrow."
One striking trend on the majors since last week is the euro's resilience in the face of signals from the European Central Bank that it is prepared to consider outright money printing to support growth if need be.
A number of dealers said the single currency was being supported by China's need to re-order the balance of currencies it holds in its reserves after buying billions of dollars last month to weaken the yuan. Similarly, many pointed to signs of intervention by South Korean authorities overnight that may support the euro going forward.
The refloating of the euro zone's struggling southern states on bond markets, exemplified on Wednesday by Greece's announcement of its first bond sale in four years, has also drawn capital back into Europe this year.
"A lot of people thought the euro would go lower (after the ECB last week), then it didn't," said Graham Davidson, a currency trader with NAB in London.
"I think there are two reasons for that: the euro is still supported by a solid trade surplus and there have been some signs of reserve diversification by a number of central banks."
The euro was flat against the dollar, but firmly in the upper half of its recent range, at $1.3800.
The dollar had weakened by more than 1 yen on Tuesday - its worst drop in more than seven months - and it has fallen steadily since U.S. jobs data on Friday, which failed to provide the impetus some had expected for a push higher.
Its recovery on Wednesday left major markets back trading in the tight ranges they have held for most of this year.
"It's not a bad level to buy back into the dollar here (against the yen)," Davidson said.
"I tend to think the action we have seen on U.S. (market interest) rates is just a squeeze and they will start to build higher again. That should take the dollar higher."
After hitting lows of 101.55 in U.S. trade on Tuesday, the dollar recovered to 102.04 yen on Wednesday. The euro also added about 0.2 percent, to 140.77 yen. (Additional reporting by Lisa Twaronite and Ian Chua; Editing by Larry King and Toby Chopra)
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