* Dollar index hits lowest since Jan. 1
* Japanese GDP below expectations, yen falls
* Euro supported by German, French data
* U.S. markets closed for Presidents Day
By Laurence Fletcher
LONDON, Feb 17 The dollar slipped to its lowest
level since the turn of the year against a basket of major
currencies on Monday as soft U.S. economic data stood in
contrast to better figures out of the euro zone and China.
The dollar index fell as low as 80.065, its lowest
since Jan. 1, and was last down marginally at 80.12. The euro
touched a three-week high of $1.37245 and was last up 0.1
percent at $1.37050.
The greenback has been weighed down by recent soft economic
data. On Friday, figures showed U.S. manufacturing output
unexpectedly fell in January, prompting some commentators to
question whether the Federal Reserve may slow the pace at which
it cuts back its massive bond-buying stimulus.
Against the yen the dollar fell to its lowest since Feb. 6
but later recovered to trade up 0.1 percent at 101.89 yen
after weaker-than-expected Japanese gross domestic product data.
"There's a general theme of dollar weakness," said Peter
Kinsella, strategist with Commerzbank in London.
"There's been a very patchy data outlook for the past six
weeks to two months and expectations of a rate rise from the Fed
have been curtailed."
He said the data had not been soft enough for the Fed to
slow its tapering, but warned that a fall in stock markets could
hit the dollar against the yen.
"The fly in the ointment is equity market sentiment. It
looks like a corrective bounce rather than a sustained leg
higher. The long equity trade is very consensual, which is a
risk for dollar-yen, which has moved in lock-step (with that)."
Japan's economy grew less than expected in the fourth
quarter of last year as consumer spending, business investment
and exports disappointed, in a worrying sign of waning momentum
before a planned sales tax increase.
Investors initially reacted by buying the yen - typically
seen as a safe haven - against the dollar, but Kinsella said the
numbers were distorted by imports and were "misleading".
The prospect of Fed tapering and further loosening of
Japanese monetary policy made betting on dollar-yen a consensus
trade for hedge funds and other investors going into this year,
but so far it has proved loss-making.
Adam Cole, head of G10 FX strategy at RBC Capital, said the
dollar could fall to 97 yen per dollar over the next
"The risk in the near term is that it continues to defy
consensus," he said.
But he added that ultimately the trade could be proved
right. "Once we get nearer to the first Fed tightening there is
scope for dollar-yen (to rise)."
The latest data showed currency speculators pared bets on
the U.S. dollar in the week ended Feb. 11.
Nevertheless, it was the 15th straight week in which
speculators held net long positions in the greenback, reflecting
a wider belief that the Fed will probably continue to wind back
its extraordinary policy stimulus this year.
Volumes were thin in most currency pairs, with U.S. markets
closed for Presidents Day and no major European data scheduled.
Investors will keep an eye on a lecture by European Central Bank
governing council member Ewald Nowotny later on Monday, after he
earlier said there may be a case for waiting and seeing if it
should change interest rates.
The euro rose 0.2 percent against the yen to 139.685 yen
, helped by data on Friday showing both Germany and
France grew slightly faster than expected in the fourth quarter,
pushing the euro zone's recovery up a gear.
Commodity currencies such as the Australian dollar were also
in favour after Chinese lending data on Saturday suggested the
world's second biggest economy may not be cooling as much as
However, analysts warned that the data could be distorted by
the Lunar New Year holidays in January. China is the biggest
export market for Australia and New Zealand.
The Australian dollar hit a fresh one-month high of $0.9070
, before ceding some ground to last stand at $0.9031.