* Bundesbank cools hopes of ECB easing, eyes on inflation
* Yen touches 6-year low vs New Zealand dollar
* Hopes of China stimulus keeping risk demand buoyant
* China PMI on Tuesday also in focus
(Recasts, adds details, fresh quotes)
By Patrick Graham
LONDON, March 31 The euro rose to a three-week
high against the yen on Monday, recovering from a dip after
lower than expected inflation numbers, though the European
Central Bank is not expected to cut rates when it meets later
Dealers said new bets for a weaker yen against the dollar
and euro have been placed since players squared up for the end
of the Japanese trading year on Thursday.
The prospect of more steps to ease monetary policy in Japan
later this year at a time when U.S. officials are reining in
their own money-printing argues for a stronger dollar. The
greenback also rose against the yen, gaining 0.4 percent.
"I heard on Friday that there was a chunk of U.S. money
going into structures on the topside (for the dollar) and the
dollar has been grinding higher since then," said Graham
Davidson, a spot dealer at NAB in London.
"That has been helped by U.S. yields going a bit higher and
Bunds have done the same."
Structures in market jargon refers to options betting on a
move one way or another in a currency. CFTC data on positioning
showed speculative bets against the yen had fallen off ahead of
the last trades in the financial year in Japan ending on Monday.
The market also on balance now looks doubtful about the
prospect of any action by the European Central Bank to ease its
own policy further this week.
Data on Monday showed inflation sank to just 0.5 percent in
March but, as Bundesbank chief Jens Weidmann underlined on
Saturday, much of the fall has been due to one-off drops in
energy and food prices over which the ECB has little control.
The common currency continues to be supported by a return of
cash to bond markets in the euro area's southern half as well as
Germany's huge current account surplus, helping it to buck
forecasts of a stronger dollar this year.
"The euro got trashed around the inflation numbers but then
came roaring back," Davidson said.
"I think the market has probably priced in the story on the
fall in inflation. The bottom line is that the economy is
recovering and my hunch would be that the bank does nothing."
A press interview published with Weidmann last week had
fueled talk that Germany's resistance to emergency steps to pump
more money into the euro zone economy was softening, driving the
euro to its lowest in a month against the dollar.
Most players now cast that as a reflection more of the
concern that a euro closing in on $1.40 per dollar generates
among ECB officials.
"They have been verbally intervening to talk the euro down
from the highs near $1.40, and the question is whether they are
ready to back that up with concrete action," said Peter
Kinsella, a currency strategist with Commerzbank in London.
"Probably they are not ready to do so yet."
Overnight the yen touched a six-year low against the New
Zealand dollar as demand for the safe-haven currency waned amid
hopes of more stimulus from China.
The kiwi, supported for months by expectations of a cycle of
interest rate rises begun by the central bank at its last
meeting, rose as far as 89.26 yen, a level not seen
since November 2007.
Traders said China's official manufacturing PMI survey due
on Tuesday will be closely watched after a recent string of
disappointing data pointed to a slowdown in the world's second
Investors will also be watching comments by U.S. Federal
Reserve Chair Janet Yellen due later on Monday for any fresh
hints on the U.S. monetary policy outlook.
The dollar got a boost earlier this month after Yellen said
the Fed could raise rates six months after its bond-buying
stimulus ends, remarks that were seen as suggesting a rate hike
could come as early as spring 2015.
(Additional reporting by Ian Chua and Masayuki Kitano; Editing
by Gareth Jones)