* Dollar back in favour after solid U.S. GDP
* U.S. economy grew at 3.2 pct annualised rate in Q4
* Downside surprise for soft EZ inflation rises after German
* Easing emerging market stress helps Aussie dollar bounce
* Kiwi falls after NZ central bank says wants to see it
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, Jan 31 The U.S. dollar traded at a
one-week high 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 choppy month gripped by concerns
over emerging economies.
The greenback was also supported after solid U.S.
October-December growth numbers revived hopes that the global
economy could, on the whole, take troubles from emerging markets
in its stride.
"I think the impact of emerging markets on G10 currencies
will diminish and the market's focus will return to the strength
of the U.S. economy," said Koichi Takamatsu, head of forex
trading at Nomura Securities in Tokyo.
The dollar index rose as far as 81.135 on Thursday.
It last stood at 81.055, little changed on the day but up 1.3
percent so far this month. Volumes were light with large parts
of Asia on holiday for the Lunar New Year.
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
programme, boosting the dollar's attraction against other major
All 70 economists in the latest Reuters poll expect the Fed
to maintain the pace of its tapering and reduce its monthly
asset purchases by $10 billion at each of the seven remaining
Federal Open Market Committee meetings this year.
The euro skidded to a one-week low of $1.3543 on
Thursday 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 that the European
Central Bank could come under more pressure to act to stave off
the risk of deflation.
Economists forecast the euro zone inflation rate, due at
1000 GMT, to come in at 0.9 percent in January, up slightly from
0.8 percent in December.
A sharp drop in euro zone inflation in the second half of
last year sparked talk that the euro zone is at risk of slipping
into deflation, although many investors do not regard this as
their main scenario.
The ECB holds its policy review next week, with any sign of
a greater willingness to take additional easing steps seen as
putting further pressure on the common currency.
On the other hand, Japan's core consumer price inflation
accelerated to 1.3 percent in January, the highest level in five
years, as Japan has pursued aggressive monetary easing for more
than a year to end deflation.
The Bank of Japan's monetary easing and Japan's ballooning
trade deficit are expected to keep the yen in check, although
the yen is likely to post its first monthly gain in six months
in January, having risen about 2.5 percent so far.
Against the yen, the dollar drifted at 102.78 yen,
having reversed some of Wednesday's 0.7 percent fall and off a
seven-week low of 101.77 yen hit on Monday on concerns about
emerging market woes.
Investors also bought back some beaten-down commodity
currencies as stress in emerging markets eased off a little
after India, Turkey and South Africa all raised interest rates
this week to defend their currencies.
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.
The Aussie stood at $0.8794, little changed on the
day but on course to post its first gain in three weeks.
Its 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 Thursday
despite expectations for a rate hike.
The New Zealand dollar was also tripped by candid comments
from New Zealand central bank chief Graeme Wheeler on Friday
that a high New Zealand dollar is a considerable headwind for
the economy and that he likes to see it lower.
The kiwi dipped as low as $0.8145, near Thursday's
one-month low of $0.8127 even as Wheeler also reiterated that
interest rates must rise as soon as March. The currency last
stood at $0.8162.