FOREX-Dollar steady near 1-week low vs yen, held back by Ukraine tensions

Fri Apr 25, 2014 12:28am EDT

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By Hideyuki Sano and Masayuki Kitano

TOKYO/SINGAPORE, April 25 (Reuters) - The dollar held steady near a one-week low versus the yen on Friday, struggling to gain traction as rising tension in Ukraine undermined optimism about U.S. economic growth.

The dollar last stood at 102.35 yen, not very far from a one-week low of 102.085 set on Thursday, when rising tensions in Ukraine helped keep risk appetite in check.

The dollar has had a lacklustre week against the yen, with a weekly loss of about 0.1 percent at its current levels.

"Although the price action in the currency market has been limited so far, the escalation of tension in Ukraine is likely to keep markets risk-off," said Kyosuke Suzuki, director of forex at Societe Generale.

Ukrainian forces killed up to five pro-Moscow rebels on Thursday as they closed in on the separatists' military stronghold in the east, and Russia launched army drills near the border in response, raising fears its troops would invade.

The yen showed limited reaction to Japan's consumer price data, which showed core CPI rose 2.7 percent in the Tokyo area, slightly less than economists' forecast of 2.8 percent.

As the impact of a consumption tax hike is estimated to have boosted the reading by 1.7 percentage points, the data suggested inflation has been essentially flat from March, when it rose 1.0 percent.

"It's a very muted day. The (CPI) data was a tiny miss and had no real effect," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.

Halley said there were some dollar bids against the yen down towards the 102.00 yen level, adding that the dollar's top side might be capped near 102.60 yen during Friday's Asian session.

Many investors expect Japan's inflation to ease later this year, prompting more policy easing from the Bank of Japan. But BOJ Governor Haruhiko Kuroda has been bullish, saying inflation is firmly on a path to reach the BOJ's target of 2.0 percent.

As Kuroda's rosy economic view has weakened expectations of an immediate easing by the BOJ, thus helping to support the yen, many investors are looking to the BOJ's economic outlook report due on Wednesday.

Concerns over a wider conflict between the West and Russia overshadowed an otherwise brightening economic picture in the United States.

March U.S. durable goods orders rose 2.6 percent, above economists' forecast for a 2 percent gain.

The euro held steady at $1.3833, having recovered from Thursday's low of $1.3791 hit after European Central Bank President Mario Draghi reiterated the potential for asset purchases to ward off deflation risks.

He warned that a rising euro, which hurt the euro zone's exporters, could force the ECB's hand on monetary policy measures.

"The exchange rate is an increasingly important factor in our assessment of the outlook for price stability," Draghi said.

The euro was also supported by an upbeat German business sentiment index despite recent tensions over Ukraine. (Editing by Kim Coghill)

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