(Removes wrong reference to trading above $1.39 in fifth
* Euro dips after ECB flags option of easing
* Dollar pulls back from lows versus yen but still shaky
* Ukraine, stocks, Chinese data in focus this week
By Patrick Graham
LONDON, April 14 The euro retreated modestly
from levels close to this year's highs on Monday after the
strongest signal yet from the European Central Bank that it will
take action to head off further gains.
Six years of debt and banking crisis have laid bare how
countries like Greece, Spain and Portugal suffer from a currency
that will not easily fall thanks to the capital rolling into
Germany, the Netherlands and other stronger economies.
Yet, aside from regular broadsides from France, ECB
policymakers have tended not to focus too much attention on the
currency. With prices falling in many of the bloc's southern
states, that seems finally to be changing.
The ECB's Italian President, Mario Draghi, said in
Washington on Saturday that "a further strengthening of the
exchange rate would require further stimulus".
Bank of France chief Christian Noyer hammered home the message
on Monday saying: "The stronger the euro is, the more
accommodative policy is needed."
The euro weakened about 0.3 percent against the dollar
, yen and sterling. But, even with
increased tensions in Ukraine fed into the mix, it held within a
cent of 2014 highs above $1.39.
"What is telling is the extent to which the euro is strong
even in the face of all of this," Simon Derrick, head of
strategy with Bank of New York Mellon in London, said.
"I'd be daft to say the euro might not weaken a bit further
in the next 24 hours or so, but after that I think we certainly
will be having another look at $1.39 and $1.40."
The euro traded at $1.3848 in European trade, having
risen about 1.5 percent last week, its largest weekly gain since
September. It was at 140.70 yen near one-month lows
against the Swiss franc at 1.2149 francs.
Ukraine, through which much of Europe's gas supplies flow
from Russia, gave pro-Russian separatists a Monday morning
deadline to disarm or face a "full-scale anti-terrorist
operation" by its armed forces.
"Draghi and the situation in Ukraine are going to keep the
euro heavy," Greg Gibbs, strategist at RBS in Singapore, said.
"But the reaction is pretty muted given the strength of
Draghi's comments on the weekend."
Gibbs said while the market thinks further ECB stimulus is
inevitable, other factors such as solid demand for peripheral
euro zone debt were underpinning the euro for now.
BNY Mellon's Derrick pointed to signs of central banks
shifting funds to euros from dollars. Traders have pointed to
signs that some Asian central banks who intervened against their
currencies in recent weeks may be exchanging some of the dollars
Against the yen, the dollar was little changed at 101.620
yen above last week's trough of 101.30, but remained on
the back foot after dropping 1.6 percent last week.
Market players said the dollar saw some reprieve from
reports that Prime Minister Shinzo Abe would meet Bank of Japan
Governor Haruhiko Kuroda during the month, which helped stoke
expectations for further monetary easing by the central bank.
"The reports have helped the dollar but support is likely to
melt away unless the meeting actually results in concrete
steps," IG Securities market analyst Junichi Ishikawa said.
Escalating tensions in Ukraine and jitters surrounding the
sell-off in technology stocks supported the yen as a traditional
safe haven for investors' cash. On Friday, the Nasdaq
closed below the 4,000 mark for the first time since February as
investors turned sour on biotech and momentum stocks.
"Wall Street's performance will remain a key driver for the
dollar and yen. Near-term focus is on 101.20 yen. It appears
significant bids for the dollar are lined up there, and a break
below that level is likely to trigger significant covering of
yen shorts," Ishikawa at IG in Tokyo said.
(Additional reporting by Ian Chua in Sydney and Shinichi
Saoshiro in Tokyo; Editing by Louise Ireland)