FOREX-Euro retreats as outlook stays dim on ECB, Russia worries

Mon Aug 11, 2014 10:14am EDT

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(Recasts with latest market moves, updates prices, adds quote, changes byline, dateline; previous LONDON)

* Euro gives up Friday's gains

* Investors watching geopolitical developments for cues

* Norwegian inflation surprises, pushing crown almost 1 pct higher

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 11 (Reuters) - The euro slid against the dollar on Monday, giving up Friday's gains, hampered by looming monetary easing from the European Central Bank and worries about the impact of the Russia-Ukraine conflict on Germany, the euro zone's largest economy.

Europe's common currency had climbed above $1.34 on Friday as investors covered overextended short positions but the rally proved short-lived given the euro zone's fundamental backdrop, although the euro seemed to have found support at $1.3350.

"The euro remains in a sell-the-rally mode as growth in the region is threatened by the ongoing conflict with Russia which is likely to have a particularly negative impact on German growth," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

Germany is Russia's largest trading partner in the European Union. EU sanctions announced last month restrict the export to Russia of equipment to modernize the oil industry and prohibit the sale of machinery, electronics, and other civilian products that can be used for military or defense purposes.

"This week's ZEW (investor confidence) survey is likely to highlight the current fears of investors and could push the pair lower if it misses the already lower expectations," Schlossberg said.

In mid-morning New York trading, the euro was down 0.2 percent on the day against the dollar at $1.3385. Against the yen, the euro was 0.1 percent lower at 136.67 yen.

The dollar, meanwhile, was up 0.1 percent against a basket of currencies at 81.462. It was up as well versus the yen at 102.09 yen.

The U.S. currency has caught a bid as Treasury yields edged higher. Higher yields are an indication that a sense of calm has returned to the market after a relatively quiet weekend in Ukraine and the Middle East.

"The greenback has now outperformed most rivals for months as improving U.S. data keep the Federal Reserve on course to raise borrowing rates next year," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The Norwegian crown soared to a seven-week high against the euro after Norway reported consumer inflation unexpectedly jumped in July, as investors trimmed expectations the central bank would cut interest rates.

The crown surged around 1 percent against the euro after the data amid high volumes, hitting 8.2835 crowns per euro . That was its strongest since June 19, when the currency dived after the Norges Bank hinted at a possible rate cut if the economy weakened.

The euro was down 1.1 percent at 8.2688 crowns. (Reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)

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