* Euro under pressure near 8-month low vs dollar
* Upbeat U.S. employment data supports dollar vs yen
* Japan CPI as expected, muted reaction from dollar/yen
(Updates prices, adds more comment)
By Patrick Graham
LONDON, July 25 The euro struggled to hold above
eight-month lows against the dollar on Friday, hurt by a dive in
Germany's Ifo survey of business sentiment as the U.S. currency
headed for its strongest week since March.
The Ifo numbers, the most watched forward-looking indicator
of growth in the euro zone's largest member economy, fell for
the third month running, with both of its main indexes declining
much more than forecast.
The euro fell to as low as $1.3440 in response, although it
resisted several attempts in morning European trade to break
through Thursday's eight-month lows around $1.3438.
The prospect of an exchange of growth-sapping sanctions with
Russia after the downing of a Malaysian airliner in Ukraine last
week have added to a growing list of concerns over European
growth, banking and public finances.
"The Ifo was the first place where the potential negative
impact on business sentiment resulting from recent geo-political
events was likely to show up," said Ian Stannard, a strategist
with Morgan Stanley in London.
"We believe that the euro has now traded (at) a major top
and we continue to look for a decline towards the $1.3295 area
initially and then $1.31 over the medium term."
Leading banks have been forecasting a decisive break higher
by the dollar against the euro since early this year but have
been frustrated by lukewarm U.S. data and yield-seeking
investment flows into European stocks and bonds.
U.S. economic numbers have finally shown some more
consistency in the past couple of months and the slightest hints
of a more hawkish tone from Federal Reserve chief Janet Yellen
have proven triggers for a jerk higher in the currency.
But there is still some caution around.
"Really, one could feel sentiment among the dealers turn
against the euro sometime in May and my feeling is that may
finally now be coming through," said Jane Foley, a strategist
with Rabobank in London.
"I did have $1.35 for the end of this year, and obviously we
have broken through that now. If it is still there in two weeks
then I will think about revising that down a little."
The dollar was little changed at 101.76 yen after
gaining more than 0.3 percent overnight to a two-week high of
101.86 after weekly U.S. filings for first-time jobless benefits
fell to their lowest since early 2006.
The greenback, which has been closely tracking U.S. debt
yields, was also helped by a rise in yields after the strong
employment indicator. It was poised to gain about 0.4 percent on
the week against the Japanese currency but lacked the momentum
to test the 102.00 threshold.
Market players said selling of yen crosses was a factor
capping further advances by the dollar.
"Selling of sterling, Australian dollar and New Zealand
dollar against the yen is helping prevent a further rise in
dollar/yen. Profit-taking in such yen crosses is a key driver,
rather than trades in dollar/yen itself," said Bart Wakabayashi,
head of currencies at State Street in Tokyo.
British economic growth data had also been keenly awaited
but a quarterly expansion bang in line with forecast at 0.8
percent left sterling little moved.
The pound fell back below $1.70 for the first time in a
month this week, but unlike the euro it has been able to rely on
strong support from an improving economy throughout that period.
It traded just 0.1 percent lower on the day at $1.6984, down
almost 0.7 percent since last Friday.
(Editing by Catherine Evans)