* Dollar index retreats from seven-month high
* Expectations of Fed QE exit seen by some as overdone
* Sterling gains on King comments, euro off 3-month low
By Jessica Mortimer
LONDON, March 15 The dollar fell on Friday as
uncertainty crept in over whether recent strong U.S. economic
data will be enough to prompt an early retreat from monetary
easing by the Federal Reserve.
The U.S. currency was pressured by strong gains in sterling
after the Bank of England's governor suggested he did not want
the pound to fall any further.
The dollar index, which measures its value against a basket
of currencies, was down 0.4 percent at 82.258 after
touching a more than seven-month high of 83.166 on Thursday.
Strong job and retail sales figures in recent days have
increased optimism that the U.S. economy is on a path to
recovery, potentially enabling a gradual move away from Federal
Reserve asset purchases.
But some analysts are unsure whether the Fed will step back
from asset buying before the end of the year, which others in
the market have been predicting. Next week's Federal Reserve
meeting will give an indication of policymakers' views.
U.S. inflation data is due at 1230 GMT and a weak number may
curb talk of an early QE exit, further encouraging investors to
take profits on the dollar's recent rise.
"People are rethinking whether the Fed will really opt for
an early exit (from monetary easing measures) as inflation is
still low," said Arne Lohmann Rasmussen, head of FX research at
Dankse Bank in Copenhagen.
The euro rose 0.4 percent to $1.3062, recovering from
Thursday's three-month low of $1.2911. Traders saw strong chart
support at the 200-day moving average at $1.2869.
Analysts said the prospect of EU leaders looking at
short-term ways of boosting faltering euro zone economies by
allowing more leeway on budget rules may also lift the euro
against the dollar.
Danske Bank's Rasmussen said the euro could recover further
towards $1.32 in coming weeks after its failure to break below
$1.29 encouraged profit-taking on dollar gains.
Investors will also focus on Italy, where a new parliament
convened on Friday for the first time since inconclusive
elections late last month. There has been no sign of a deal to
break the political deadlock, which could weigh on the euro.
KING TURNAROUND BOOSTS POUND
Sterling was up 0.5 percent at $1.5154, building on
solid gains over the past two days after plumbing a 33-month low
of $1.4832 earlier this week.
It extended gains after BoE chief Mervyn King said its
decline had gone far enough, although traders did not expect the
pound's rise to last long given concerns about the UK economy
and speculation of more monetary easing.
The dollar held steady at 96.09 yen, with the
Japanese currency helped by short covering after hefty one-way
bets against the yen had built up over recent months.
The dollar has been trapped in a narrow trading range
against the yen since scaling a 3-1/2-year peak of 96.71 on
Tuesday. But the yen was expected to stay weak on the prospect
of aggressive monetary easing in Japan.
"It's pretty much moved sideways over the last few days.
That demonstrates, particularly in an environment where we are
seeing this bigger correction (in the dollar), that the
underlying trend in dollar/yen is still very strong," said Ian
Stannard, head of European FX strategy at Morgan Stanley.
"We are now looking for a move up to the 100 yen area over
the course of the next few weeks."
Japan's parliament approved Prime Minister Shinzo Abe's
nominee for central bank governor, Haruhiko Kuroda, and nominees
for the two deputy governor posts, clearing the way for
aggressive monetary easing.
Kuroda's pledge to "act with speed" and do whatever it takes
to hit the BOJ's new inflation target has some investors
speculating he may summon a meeting even before the next
scheduled policy review on April 3-4.