* Dollar rallies; euro, sterling hurt by poor data
* Some speculation of ECB rate cut pushes euro lower
* Rate differentials move in favor of United States
* Washington close to taking first steps on $85 billion in
By Julie Haviv
NEW YORK, March 1 The euro tumbled to a 2013 low
against the U.S. dollar on Friday while the dollar rose to a
six-month high against a basket of currencies as weak euro zone
data highlighted a growing economic disparity with the United
Speculation that the European Central Bank may take action
to curb economic deterioration gathered pace after benign euro
zone inflation data, with the euro falling below the key
psychological level of $1.30 for the first time since December.
Investors shunned the euro as European manufacturing
appeared no closer to a recovery last month while growth in Asia
cooled, according to business surveys and trade data that
pointed to ongoing weakness in global demand.
Poor euro zone economic data, along with cooling inflation
and the risk that political instability in Italy may push up
borrowing costs for struggling countries, could exert pressure
on the ECB to lower interest rates in coming months, which
should keep the euro weak.
"The dollar index is flying high on improving growth
differential prospects ... while at the same time investors
remain concerned that fiscal uncertainty has the potential to
weigh on the economy," said Andrew Wilkinson, chief economic
strategist at Miller Tabak & Co in New York.
The U.S. government hurtled toward making deep spending cuts
that threaten to hinder the nation's economic recovery, after
Republicans and Democrats failed to agree on an alternative
President Barack Obama meets top leaders of Congress at the
White House at 10 a.m. (1500 GMT) to explore ways to avoid the
unprecedented, across-the-board cuts totalling $85 billion.
The International Monetary Fund warns that the cutbacks
could knock at least 0.5 percentage point off U.S. economic
growth this year and slow the global economy.
The dollar index reached its highest level since late
August. It gained as the euro fell to a 2013 trough of
$1.2985, its lowest since Dec. 11. Option barriers were cited at
$1.2950 and $1.2900.
"When you look across Europe, you see high unemployment,
barely any growth, apart from Germany, and rising debt levels,"
said Howard Jones, advisor at money mangers RMG Wealth
Management. "What Europe needs is growth, easier monetary
conditions and a weaker currency."
"The U.S. data in comparison is much better than Europe and
to us, the dollar is a buy. We expect the euro to ease towards
the mid-$1.20s in the next two months."
Interest rate spreads between two-year U.S. government bonds
over their German counterparts gave
investors another reason to buy the dollar. Some expect the
Federal Reserve to slow its asset purchase program later in the
year as the U.S. labor market shows signs of improvement.
In contrast, joblessness in the euro zone rose to an
all-time high while business surveys showed manufacturing
activity was sluggish in February.
Despite the spending cuts hurting growth in the United
States, the economy is not expected to perform as badly as the
euro zone, Britain and Japan, which are all battling recession
or deflation, giving the dollar a boost.
Investors will focus on the Institute for Supply
Management's February manufacturing index and after a robust
rise in factory activity in the Midwest, analysts said there was
a chance of a good reading.
"The end of 2012 has likely seen the low in real U.S.
yields. This suggests the Fed is unlikely to do further easing
measures," Deutsche Bank said in a note.
It added that even if the Fed did ease more, other central
banks like the Bank of Japan were catching up with Fed easing,
pushing down the value of their currencies against the dollar.
The dollar rose to a 2-1/2-year high against sterling
after a shock contraction in manufacturing activity in
February raised expectations that the Bank of England could
announce fresh monetary easing as early as next week.
Against the yen, the dollar last traded at 92.78 yen,
up 0.3 percent on the day, according to Reuters data.
Expectations of aggressive monetary policy action from the
Bank of Japan has caused the dollar to notch impressive gains
against the yen since late last year.
The dollar has risen nearly 7 percent against the yen so far
in 2013, making it one of the strongest performing currency
pairs of the year.