* Dollar falls after data dents growth optimism
* U.S. consumer sentiment tumbles, inflation not yet a
* Sterling rallies on BOE's King comments, yen at one-week
* Concerns about Italy could pressure euro
By Julie Haviv
NEW YORK, March 15 The dollar skidded from a
seven-month high against a basket of currencies on Friday after
U.S. data sapped optimism about the economy and affirmed
expectations the Federal Reserve will continue its bond-buying
program for the foreseeable future.
The greenback, poised to notch its first weekly loss against
the euro in six weeks, succumbed to broad selling pressure as a
slew of U.S. data prompted investors to book profits on recent
While U.S. manufacturing output bounced back in February,
other reports on Friday showed a spike in consumer inflation
last month and subdued consumer sentiment in early
But gasoline accounted for about three quarters of the spike
in consumer inflation in February, leaving the door open for the
Federal Reserve to press ahead with its bond-buying stimulus,
bearish for the dollar.
Recent better-than-expected U.S. data, namely jobs market
gauges, helped propel a rally in the dollar for over a month as
investors bet the Fed would reconsider its asset purchase
program. The program is tantamount to printing money and
therefore dilutes the dollar's value.
"It looks like we still have some scope to continue with
QE," said Andrew Dilz, foreign currency trader at Tempus
Consulting in Washington, referring to the Fed's bond-buying, or
quantitative easing program.
The dollar index, which tracks the greenback versus a basket
of currencies, fell 0.4 percent to 82.242. It had risen
to 83.166 on Thursday, the highest since early August, buoyed by
positive data on U.S. employment and consumer spending released
over the past week.
The Fed meets next week and looks set to keep buying $85
billion a month in mortgage and Treasury bonds in an effort to
encourage investment and bolster a weak economic recovery
. The program is aimed at keeping long-term
interest rates low, eroding the dollar's yield appeal.
Lately, the dollar has benefited from good news on the
economy as expectations U.S. growth is outperforming other major
countries have lured foreigners into U.S. assets.
The dollar's recent strength also coincides with a broad
risk rally. That contrasts starkly to previous years in which
the dollar would typically weaken on good data as investors sold
the low-yielding U.S. currency in favor of emerging market
stocks and commodities.
"We continue to believe that the relative performance of the
U.S. economy will bolster the dollar over the medium term,
especially versus currencies with central banks that are
expected to adopt a more stimulatory stance, such as the yen and
British pound," Barclays Capital wrote on Friday.
Nevertheless, sterling jumped after the Bank of England's
governor suggested he did not want the British pound to fall any
BoE chief Mervyn King said its decline had gone far enough,
although traders did not expect the pound's rise to last long
given concerns about the UK economy and speculation of more
EURO UP BUT VULNERABLE
The euro gained on the prospect of EU leaders looking at
short-term ways of boosting faltering euro zone economies.
The euro rose 0.4 percent to $1.3058, having hit a
session high of $1.3107 on Reuters data and recovering from
Thursday's three-month low of $1.2910.
Traders said the euro's failure to break below $1.29
encouraged profit-taking on dollar gains. Strong chart support
is at the 200-day moving average at $1.2869.
Arne Lohmann Rasmussen, head of FX research at Dankse Bank
in Copenhagen, said the euro could recover further towards $1.32
in coming weeks. Danske Bank forecast it to rise to $1.35 in
three to six months but believe this will mark its peak.
Concerns about Italy could pressure the euro as the
country's parliament convenes for the first time since last
month's inconclusive election, with parties still deadlocked
over how to form a government.
Investors would prefer Italy avoided new elections, a survey
by Morgan Stanley showed. Stress began to show in Italy's bond
The dollar, meanwhile, fell 0.6 percent to 95.54 yen,
with the Japanese currency helped by short-covering after a
decline of about 10 percent this year. The dollar earlier fell
to 95.06 yen, a one-week low.
Japan's parliament approved Prime Minister Shinzo Abe's
nominee for central bank governor, Haruhiko Kuroda, and nominees
for the two deputy governor posts, clearing the way for the
radical monetary easing.
Kuroda's pledge to "act with speed" and do whatever it takes
to hit the BOJ's new inflation target has some investors
speculating he may summon a meeting even before the next
scheduled policy review on April 3-4.