(New throughout, changes dateline from previous TOKYO/SYDNEY)
* Market holidays mute reaction to lacklustre China PMI
* Euro a touch higher having ridden out lower inflation
* Smooth Fed meeting calms worries over weak U.S. GDP
By Patrick Graham
LONDON, May 1 The euro inched higher on Thursday
having ridden out two days of worse than expected news on euro
zone inflation and the U.S. economy that have not fundamentally
altered perceptions of the policy outlook in either.
This year's dominant trend on major currency markets is the
euro's continued strength in the face of a steady reining in of
U.S. monetary policy stimulus and expectations the European
Central Bank would be forced at some stage to do the opposite.
A number of analysts had predicted low euro zone inflation
on Wednesday, following lower than forecast figures out of
Germany a day earlier, might be enough to turn the single
currency significantly weaker.
But instead it bounced back robustly and was up another 0.2
percent on Thursday at $1.3888 in a session thinned out by
public holidays across Asia and Europe.
"I thought yesterday we might have the ingredients for some
more decisive weakness but it just did not materialise," said
Daragh Maher, strategist with HSBC in London.
"One of the problems is that there is a pretty high level of
cynicism about the ECB's willingness to act. On the top side on
the other hand there is a reluctance to push higher because that
may actually force them to do so."
Policymakers at the euro zone's central bank have talked
aggressively about their willingness to take action to head off
a debilitating cycle of falling prices and demand, and as such
have outright opposed any further gains for the euro.
But they face substantial barriers to delivering the sort of
decisive policy action that would weaken the currency at a time
when capital is flooding back into the euro zone's peripheral
economies and stock markets.
"There is a lot of talk in the market of what the ECB might
do next week, but I don't think many people really believe they
are capable at the moment," said a dealer with one London bank.
"That keeps the euro supported but leaves us in limbo really."
The dollar was propped up overnight by a steady-as-she-goes
message from the Federal Reserve on its gradual reduction in the
amount of dollars it is pumping into the economy every month.
The bank as expected cut another $10 billion off the programme
and provided a reasonably upbeat message on the economy that
eased market nerves over slightly lower than expected first
quarter growth figures.
"The GDP numbers were soft but the Fed had a look and said
its outlook was unchanged," Maher said. "You can have weaker
numbers but unless it affects the outlook for policy you won't
see much reaction."
Against a basket of currencies the dollar was just
0.03 percent lower in early European trade.
China's official Purchasing Managers' Index had little
impact on global markets. Some analysts said a similar survey in
the UK may offer some direction to sterling, which was trading
at $1.6888, very close to highs for this year hit a day earlier.
(Editing by Toby Chopra)