* Euro drops to 1-mth low as hedge funds sell
* British pound at 16-month high vs euro on rate outlook
* Swedish crown rises after inflation data
By Anirban Nag
LONDON, May 13 The euro fell to a one-month low
against the dollar on Tuesday after a report that Germany's
powerful Bundesbank would back monetary easing measures to
support the euro zone economy.
A key German survey showing a sharp decline in investor
morale in Europe's biggest economy also weighed on the currency.
Traders say hedge funds have stepped up euro selling on
speculation that the European Central Bank will ease monetary
policy next month to counter a strengthening currency and its
impact on already low inflation.
Quoting an unnamed source, Dow Jones reported on Monday that
the hawkish German central bank was willing to back a negative
interest rate on bank deposits and ECB purchases of packaged
bank loans if needed to keep inflation from staying too low.
The report drove the euro past support at its 100-day moving
average of $1.3740 to a trough of $1.3700, its lowest
since April 7, and down 0.4 percent on the day.
The common currency had already weakened after the monthly
ZEW survey of German economic sentiment fell short of
expectations. The index reading dropped to 33.1 from 43.2 in
April, missing a Reuters consensus of 41.0 and undershooting
even the poll's lowest estimate of 37.1.
"Expectations are back at to levels seen in early 2013 and
respondents are looking for a rate cut," said Jeremy Stretch,
head of currency strategy at CIBC World Markets. "What is now
needed for a weaker euro is a push from the U.S. side, with
better data likely to lift U.S. yields and the dollar."
U.S. retail sales for April are due later and are
expected to show a slowdown after a sharp rise in March.
Yujiro Goto, a strategist at Nomura said that unless U.S.
data improved significantly, the euro's move lower was likely to
be more of a grind than a fast-paced decline.
"We see the euro trading with a downward bias given the
market is expecting some kind of easing from the ECB next month.
It is still not clear whether it will do quantitative easing,
but a rate cut is more likely," he said.
SWEDISH CROWN RISES
The Swedish crown rose against the euro after monthly
inflation came in above expectations. The euro fell
0.5 percent to 8.9935 crowns after the data was released from
9.0420 crowns beforehand.
Against sterling, the euro stood at 16-month lows of 81.40
pence. The pound was buoyed by prospects of rate
hikes by the Bank of England, perhaps as early as later this
Data showed British retail sales jumped in April as rising
house prices encouraged shoppers to buy new furniture, flooring
and other home decor over the Easter holiday weekend.
The yen ticked down to a one-week low against the dollar as
improved risk sentiment sent U.S. share prices to record highs.
European stocks were also trading firmer on expectations of more
stimulus from the ECB.
The dollar traded up 0.2 percent against the yen at
(Editing by Catherine Evans)