FOREX-Dollar holds firm, German ZEW could hurt euro

Tue Apr 15, 2014 3:30am EDT

Related Topics

* Dollar index firm, dollar/yen holds above recent lows

* Some wariness about tensions in Ukraine

* Euro pressured by ECB Draghi's warning (Adds fresh comments, updates prices, changes DATELINE)

By Anirban Nag

LONDON, April 15 (Reuters) - The dollar climbed against a basket of major currencies on Tuesday, staying on firm footing after U.S. retail sales data the previous day signalled a brighter outlook for the U.S. economy.

U.S. retail sales recorded their largest gain in 1-1/2 years in March, the latest data to suggest growth was set to spring back in the second quarter after an unusually harsh winter.

The dollar index edged up 0.1 percent to 79.802, holding above Monday's low of 79.562, with a rise in U.S. yields helping the greenback. The index has a strong correlation with Treasury yields.

It was also higher against the euro, with traders awaiting the German ZEW survey for April.

Some caution over tensions in Ukraine was tempering the dollar's gains against the safe-haven yen, but overall sentiment was slowly shifting in favour of the dollar, traders said.

"A lot depends on the data that comes out in the second quarter. Good U.S. data would offer yield support to the dollar and spreads will move in its favour," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

"Also if we get a disappointing ZEW survey, it will hurt the euro which is anyways capped by the rhetoric from the ECB."

The German ZEW for April, which will be released at 0900 GMT, is very volatile because it is an investor-based survey, and may highlight some of the concerns from events in Ukraine, analysts said.

Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore, said moves in U.S. 10-year Treasury yields was more of a motivator for dollar/yen now than the tensions in Ukraine.

"Dollar/yen has been showing a strong correlation to U.S. 10-year yields," Okagawa said. With U.S. 10-year Treasury yields stuck recently in a range of roughly 2.6 to 2.8 percent, the dollar has also been range-bound against the yen, he added.

The dollar was flat against the yen at 101.82 yen.

ECB WEIGHS ON EURO

The euro remained under pressure from weekend comments from European Central Bank officials, including President Mario Draghi, who rekindled speculation about more easing in the euro zone.

It slightly lower against the yen at 140.65 yen while it also shed ground against the dollar to trade at $1.3813 , staying below a three-week high of $1.3906 touched on Friday.

The yen barely reacted after Bank of Japan Governor Haruhiko Kuroda said on Tuesday that Prime Minister Shinzo Abe did not bring up additional monetary easing during one of their regular meetings.

Speaking to reporters after the lunch meeting, Kuroda said Japan was still in the process of meeting the central bank's 2 percent inflation target, but prices were on track to achieve the goal. Kuroda also said he told Abe that he would not hesitate to adjust monetary policy if needed.

The Australian dollar slipped 0.4 percent to $0.9385 , with the near-term focus on Chinese economic indicators coming up on Wednesday, including data on gross domestic product. (Additional reporting by Masayuki Kitano; Editing by Sonya Hepinstall)

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