* Euro falls to 6-week low versus dollar
* Dollar/yen option barriers at 103 yen
* Dollar index at highest since July 2012
By Anirban Nag
LONDON, May 15 The euro fell to a six-week low
against a buoyant dollar on Wednesday, hurt by an unexpectedly
large contraction of the euro zone economy which bolstered the
case for more monetary easing by the European Central Bank.
In contrast, the U.S. is showing signs of a recovery,
underpinning expectations that the Federal Reserve may wind down
its asset purchases programme by the end of the year. That has
pushed up U.S. bond yields and driven the dollar to
a 4-1/2 year high against the yen.
The euro was down 0.3 percent against the dollar at
$1.2883, with exporter bids cited around $1.2880. Many investors
are looking for the single currency to bounce towards $1.2900
before initiating fresh bets against it, expecting it to then
fall towards $1.2740, traders said.
"This (data) will put pressure on the ECB to act. And if
U.S. yields stay supported and data there keeps improving, we
could see the euro target the $1.2740 area," said Jeremy
Stretch, head of currency strategy at CIBC World Markets.
European Central Bank officials have said they could ease
monetary policy further, and perhaps even take the deposit rate,
the level at which banks park their surplus cash with the
central bank, below zero, if the economy slowed.
A cut in the deposit rate would make holding euros
unattractive and could lead to a broad selloff.
Germany, the biggest economy in the currency bloc, grew by
just 0.1 percent in the first quarter, weaker than forecast,
while the second-largest economy, France entered a shallow
recession after contracting by 0.2 percent in the same period.
Overall, the euro zone contracted by 0.2 percent, compared with
a 0.1 percent fall forecast.
The euro's losses saw the dollar index rise 0.3
percent to 83.871. More gains by the dollar could see the index
rise to as high as 84.10, a peak hit in July 2012. Beyond that,
the index would rise to levels not seen since mid-2010.
The dollar rose to 102.63 yen on EBS trading
platform, its highest since October 2008. Option barriers are
cited at 103 yen that could slow the dollar's rise, traders
said. But the overall trend for more yen weakness remained.
The Bank of Japan could ease its already ultra-loose
monetary policy even further as early as October if prices do
not rise as quickly as projected, according to economists polled
The dollar rose to a nine-month high against the Swiss franc
of 0.97165 francs and a 11-month peak against the
Australian dollar. Traders said the U.S. currency could
rise further if the New York Fed's "Empire State" general
business conditions beat expectations.
"We are bullish about the dollar," said Howard Jones,
advisor at RMG Wealth Management.
"The overriding factor to us is that there is potential for
quantitative easing in the U.S. to taper and that should help
the dollar. We are especially bullish dollar against the Swiss
franc and the Australian dollar where we think there will be