FOREX-Dollar firms, but needs better data to extend gains

Tue Apr 15, 2014 6:56am EDT

Related Topics

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

* Some wariness about tension in Ukraine

* Euro pressured by ECB Draghi's warning (Adds fresh comments, updates after German ZEW)

By Anirban Nag

LONDON, April 15 (Reuters) - The dollar climbed against a basket of major currencies on Tuesday, helped by firmer U.S. Treasury yields, after U.S. retail sales data the day before signalled a brighter outlook for the world's largest 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 a harsh winter.

The dollar index edged up 0.15 percent to 79.848, holding above Monday's low of 79.562, as a rise in U.S. yields helped the greenback. The index has a strong correlation with Treasury yields.

It was also higher against the euro. The common currency was weighed down by a mixed German ZEW survey for April and growing rhetoric from European Central Bank officials warning against a firmer currency.

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," said Jeremy Stretch, the head of currency strategy at CIBC World Markets. "Good U.S. data would offer yield support to the dollar and spreads will move in its favour."

U.S. inflation for March is due at 1230 GMT, with core inflation forecast to edge up 0.1 percent from a month ago. The New York Fed's "Empire State" general business conditions index, a gauge of manufacturing in New York, is also due then and is forecast to show an uptick.

The dollar was flat against the yen at 101.85 yen. Some bulls were disappointed that Bank of Japan has not indicated more easing is on the cards.

The yen barely reacted after BoJ Governor Haruhiko Kuroda said 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.

EURO GRINDING LOW

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

It was 0.15 percent lower against the yen at 140.55 yen . It also shed ground against the dollar to trade at $1.3800, staying below a three-week high of $1.3906 touched on Friday.

It was held back slightly in European trade by a mixed German ZEW survey. The monthly poll of investor and analyst sentiment in Europe's largest economy fell for a fourth consecutive month in April as the crisis in Ukraine weighed on the outlook. But the current conditions survey rose to its highest level since July 2011.

"Investors are cautious about the euro given the ECB rhetoric," said Manuel Oliveri, an FX strategist at Credit Agricole. "At the same time, the capital inflow situation is supporting the euro and unless the ECB takes action, like cutting the deposit rate to zero, it will be tough for the euro to drop much."

Euro zone's current account surplus hit a record high in January, soaring to 25.3 billion euros, indicating more capital flowed into the region than out. That situation is expected to continue, with the trade surplus widening in February from a year earlier as exports rise but imports are unchanged, the European Union's statistics office Eurostat said on Tuesday.

(Additional reporting by Masayuki Kitano; Editing by Larry King)

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