FOREX-Dollar perks up but still lacks conviction

Tue May 27, 2014 6:57pm EDT

* Dollar index briefly touches an eight-week high

* Upbeat U.S. data helps lift dollar sentiment

* BOJ Governor speech a focus in Asia

By Ian Chua

SYDNEY, May 28 (Reuters) - The U.S. dollar held near an eight-week peak against a basket of major currencies early on Wednesday, having edged up on the back of encouraging U.S. data and another record high on Wall Street.

The dollar index rose as far as 80.470 - a level last seen in early April - but has since retreated to 80.350.

Dollar bulls took heart after data showed orders for long-lasting U.S. manufactured goods unexpectedly rose in April and consumer confidence perked up in May.

However, a lack of conviction resulted in the dollar ending trade in New York with either slim gains or none at all against its major peers.

The euro last traded at $1.3635, having recovered from a three-month low of $1.3612 plumbed overnight. Both the dollar and the euro clung to modest gains against the yen at 102.01 and 139.07, respectively.

Comments from European Central Bank (ECB) President Mario Draghi again highlighted the bank's discomfort over persistently low inflation and suggested some kind of policy action was likely at the June 5 meeting.

At the final day of the ECB Forum in Portugal, Draghi said the ECB was aware of the risks from prices remaining too low for too long and the ECB was equipped to get inflation back to its target again.

At the same forum earlier in the week, he said the bank must be "particularly watchful" for any negative price spiral in the euro zone.

The euro has already fallen more than 2 percent against the dollar since Draghi said on May 8 that the ECB was ready to act at the June meeting if updated inflation forecasts merit it.

Traders said further downside for the euro will depend on how aggressively the ECB acts to tackle the threat of deflation.

In the meantime, there is a risk of a short-covering bounce in the euro going into next week's policy review, analysts at BNP Paribas wrote in a note to clients.

"But our positioning analysis suggests markets have not yet become overly short euro, and we suspect longer-term investors with large euro exposures may be only beginning to consider hedging away their euro risk," they said.

The Australian dollar outperformed the greenback overnight, briefly touching a one-week high of $0.9278 as it continued to gradually recover from this month's steep fall from above 94 U.S. cents.

Given an absence of major economic data out of Asia, the focus will be on a speech by Bank of Japan (BOJ) Governor Haruhiko Kuroda in Tokyo.

The BOJ has stood pat on policy since launching an aggressive quantitative easing programme last April, and Kuroda has repeatedly expressed confidence that the current policy setting is helping the Japanese economy make steady progress toward meeting the BOJ's inflation target of 2 percent. (Reporting by Ian Chua; Editing by Jan Paschal)

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