* New York Fed's Empire State manufacturing index slows in
* Yen hits three-week low against euro
* Bank of Japan holds policy steady
By Sam Forgione
NEW YORK, Feb 18 The dollar on Tuesday fell
against the euro to its lowest in seven weeks after a gauge of
manufacturing in New York state slowed in February, stoking
uncertainty about the direction of the Federal Reserve's
The New York Fed's "Empire State" general business
conditions index fell to 4.48 in February from 12.51 in January.
Economists polled by Reuters had expected a reading of 9.0.
"The data have been pointing to a loss of momentum in the
economy and have raised doubts about the trajectory of Fed
tapering," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington.
Janet Yellen, in her first public comments as Fed chief on
Feb. 11, emphasized continuity in the U.S. central bank's policy
strategy of cutting asset purchases by $10 billion a month, but
some suspect the Fed could slow the pace of its reduction in
stimulus following weak U.S. economic data.
The euro rose to $1.3769, marking a seven-week high
against the dollar and surpassing a key resistance of $1.3740.
The euro barely reacted to a mixed German ZEW survey of analyst
and investor sentiment. It was last at $1.3756, up 0.4
percent on the day.
"The momentum has been in favor of the euro," said Mark
McCormick, foreign exchange strategist at Credit Agricole in New
The euro also raced to a six-week peak against the Swedish
crown of 8.9180 crowns after consumer prices in
Sweden fell more than expected in January and revived talk of an
interest rate cut.
The euro rose as well against the British pound
to trade at 82.37 pence after softer-than-expected UK inflation
The yen, meanwhile, fell to its lowest in nearly three weeks
against the dollar and the euro after the Bank of Japan held
policy steady, as expected, and extended a special lending
programme to support the economy.
In an attempt to get Japanese banks to lend more, the BOJ
decided to extend three special loan facilities by one year. It
also raised the maximum amount of the loans and said financial
institutions would be able to borrow funds at a fixed rate of
0.1 percent over 4 years instead of 1-3 years at present.
The measures were seen as an inclination to ease monetary
policy and sent Japanese stocks higher and the yen lower. BOJ
chief Haruhiko Kuroda said the economy was moving in line with
the central bank's assessment, suggesting no further easing
steps were likely in the near term.
The Nikkei stock average ended 3.1 percent higher,
pushing the yen lower. The dollar was up 0.41 percent at 102.36
yen, having hit a February high of 102.73, while the euro
was up 0.75 percent at 140.76 yen.
"The actions overnight by the Bank of Japan are a signaling
tool that they're willing to ease policy further later in the
year," said McCormick of Credit Agricole.
McCormick said the BoJ's monetary policies are lowering
interest rates, driving investors to seek higher yields in
regions such as the United States and the euro zone, which in
turn has weakened the Yen currency.
In other currency pairs, the dollar hit a seven-week trough
against the Swiss franc at 0.8868 franc.