* Dollar back in favour after volatile night
* Easing emerging market stress helps Aussie dollar bounce
* U.S. economy grew at 3.2 pct annualised rate in Q4
* Downside surprise for soft EZ inflation rises after German
By Ian Chua
SYDNEY, Jan 31 The U.S. dollar traded at
one-week highs against a basket of major currencies early on
Friday, having been swept higher as investors took aim at the
euro in a volatile end to a very choppy month.
The dollar index rose as far as 81.135 from
Thursday's low of 80.545, on track to end the week up 0.7
percent. It was up 1.3 percent so far this month.
U.S. dollar bulls welcomed data on Thursday showing the
world's biggest economy grew at a solid 3.2 percent annualised
rate in the fourth quarter.
Traders said that was enough to support the view that the
Federal Reserve can continue to wind down its stimulus program.
All 70 economists in the latest Reuters poll expect the Fed
to maintain the pace of the taper and reduce by $10 billion at
each of the seven remaining FOMC meetings this year.
Against the yen, the dollar drifted back up to 102.78
, reversing some of Wednesday's 0.7 percent fall. Volumes
were light with large parts of Asia on holiday.
The euro, meanwhile, skidded to a one-week low of $1.3543
and also lost ground on the Japanese currency, touching
an eight-week trough of 138.90.
Soft German inflation data ahead of a euro zone reading
later on Friday, kept alive market speculation the European
Central Bank could come under more pressure to act to stave off
the risk of deflation.
The ECB holds its policy review next week.
"The single currency may weaken further in February should
the European Central Bank show a greater willingness to further
embark on its easing cycle," said David Song, analyst at
Investors also bought back some beaten-down commodity
currencies as stress in emerging markets eased off a little.
The Australian dollar was one such beneficiary, bouncing
back towards 88 U.S. cents as it pulled away from a 3-1/2 year
low of $0.8660 plumbed a week ago.
It's New Zealand peer, however, enjoyed no reprieve with
kiwi bulls still smarting after the Reserve Bank of New Zealand
kept interest rates unchanged at a record low 2.5 percent on
The New Zealand dollar traded at $0.8167, having
plumbed a one-month low of $0.8127.
In an eye-catching move, the Aussie jumped more than 1
percent against its Antipodean counterpart, dealing a severe
blow to the kiwi's bull run.
The Aussie was last at NZ$1.0750, near a three-week peak of
NZ$1.0793 set overnight. It was still down 0.8 percent this
year, following a 13-percent slide in 2013.