* Euro falls for 5th day against the dollar to 6-week low
* Expectations of ECB action rise after GDP data
NEW YORK, May 15 The euro slipped to its lowest
level against the dollar in six weeks on Wednesday as data
showing an unexpectedly large contraction of the euro zone
economy raised expectations for more monetary easing by the
European Central Bank.
The dollar again rose to a 4-1/2-year high against the yen
as investors debated the outlook and policies affecting the U.S.
economy against those affecting Japan, though it pared gains
midway through the New York session to trade flat.
While it has been the yen that investors have focused on in
recent days, the euro dominated on Wednesday as it fell for a
fifth straight session against the greenback. Data showed
Germany's economy crept back into growth at the start of the
year, but not by enough to stop the overall euro zone economy
from contracting for a sixth straight quarter. France,
meanwhile, slid into recession.
By contrast, the United States is showing signs of a
recovery, underpinning expectations that the Federal Reserve may
wind down its asset-purchasing program by the end of the year.
The dollar briefly pared gains after data showed
manufacturing activity in New York state contracted unexpectedly
in May as new orders and shipments of finished goods fell, but
that was not enough to deflect the overall trend.
Inflation data showed U.S. producer prices recording their
largest drop in three years in April, pointing to weak inflation
pressures that should give the Federal Reserve latitude to keep
monetary policy very accommodative.
"The U.S. economy appears to be improving, albeit slowly,
while the euro zone GDP data overnight reinforced expectations
of additional easing from the ECB, either through lower interest
rates or through nonstandard measures such as negative deposit
rates," said Omer Esiner, chief market analyst at Commonwealth
Foreign Exchange in Washington, D.C.
"That contrasts with a growing notion that the Fed is
inching closer to an exit strategy," he said.
The euro fell as low as $1.2842, its lowest since April 4,
and last traded down 0.4 percent against the dollar at $1.2863
. Against the yen, the euro last traded at 131.67 yen
, down 0.5 percent on the day.
European Central Bank officials have said they could ease
monetary policy further, and perhaps even take the deposit rate,
the level at which banks park their surplus cash with the
central bank, below zero if the economy slowed.
A cut in the deposit rate would make holding euros
unattractive and could lead to a broad selloff.
Concerns about the euro zone's recession trumped positive
news out of Greece, with 10-year Greek government bond yields
tumbling to their lowest in nearly three years, one day after
Fitch upgraded the country's sovereign credit ratings.
DOLLAR RISES VERSUS YEN
The dollar earlier in the global session rose as high as
102.76 yen on Reuters trading platform, its highest since
October 2008 and the fifth rise in as many days. But dollar
gains were pared during the North American session on falling
U.S. Treasury bond yields. Yields move inversely to price.
The dollar last traded at 102.36 yen, little changed
on the day, according to Reuters data.
Dollar/yen "is a one-way trade and no one knows what to do,"
said George Dowd, head of the foreign exchange desk at Newedge
USA LLC in Chicago. "It's difficult to buy at 10-2.50 but if you
don't buy you miss it. There has been no pull back since late
The dollar is now up 18.1 percent for the year. Though there
are seven months until the year closes, if gains were to hold at
this level it would be the best year since 1979 when the dollar
rose 23.68 percent against the yen.
Some $4.9 billion in euros changed hands on
Wednesday on Reuters Dealing and US$3.08 billion in yen