FOREX-Dollar strength ebbs, threats of ECB action keep euro subdued

Tue Apr 22, 2014 11:11am EDT

Related Topics

* March U.S. existing home sales dip less than expected

* ECB's Draghi speech may weigh on euro

* Euro zone PMIs and German IFO a key focus (Recasts with New York trade, changes dateline and byline, previous LONDON)

By Daniel Bases

NEW YORK, April 22 (Reuters) - Investors trimmed their positions of U.S. dollars on Tuesday after a two-week run higher, unmoved by a U.S. March existing home sales report that beat expectations but showed a modest decline from the prior month.

Trading ranges remained narrow as Europe returned from the Easter holidays and faced uncertainty over whether European Central Bank policy will move toward more monetary stimulus.

The euro gave up some of its modest gains, but remained positive against the greenback and yen.

U.S. existing home sales slipped by 0.2 percent in March compared to February, but annual unit sales, while the lowest since July 2012, beat forecasts.

European Central Bank President Mario Draghi recently made clear the euro's strength is a possible trigger for the central bank to ease monetary policy. He is scheduled to give a keynote speech in Amsterdam on Thursday.

ECB executive board member Benoit Coeure said on Tuesday that there was further margin to reduce the main interest rate below 0.25 percent and that the strength of the euro could be keeping inflation too low.

But until the ECB takes action, traders said the euro was unlikely to weaken much, thus keeping it tied to a range.

The euro slipped to a two-week low of $1.3783, a slight loss on the session before rebounding to trade unchanged amid low volumes.

"For all the talk of unorthodox measures, the euro has been rock solid. It may be constraining the upside, but it is not beating it down either. The euro bears are long exhausted here," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York.

Investors are also awaiting euro zone 'flash' PMI surveys on Wednesday while the German IFO institute's monthly reading of business sentiment in Europe's largest economy is due a day later.

"Euro/dollar is likely to trade with a weaker bias this week given the German IFO and Draghi's speech coming up," said Yujiro Goto, currency analyst at Nomura. "Any downside will be limited though, as investors will await the inflation data due next week."

Very weak inflation in the euro zone, due partly to the strong exchange rate, has raised pressure on the ECB to further loosen monetary policy to stimulate growth.

In the past few weeks Draghi has brought the currency into focus and warned that any further strengthening could lead the euro zone's central bank to use unconventional tools such as asset purchases.

On the other hand, analysts said the dollar was starting to look attractive on the back of improving U.S. data and earnings.

"Better-than-expected company earnings could also encourage renewed inflows into the U.S. stock markets and underpin the dollar," said Citi analyst Valentin Marinov.

The dollar was steady at 102.65 yen, after rising as high as 102.73 yen, its highest since April 8 (Addiitonal reporting by Anirban Nag in London; Editing by Mark Trevelyan and Tom Brown)

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