* Euro recovers on relief euro zone did not shrink in Q2
* Kiwi boosted by strong New Zealand retail sales
* Sterling hits 4-month low as rate hike bets pushed back
By Jemima Kelly
LONDON, Aug 14 The euro recovered from near
nine-month lows against the dollar on Thursday on relief that
the euro zone as a whole did not shrink in the second quarter,
despite a contraction in its biggest economy, Germany.
Though euro area growth stalled in April-June, missing
modest expectations of 0.1 percent, the numbers provided some
respite for the euro after the weaker than expected data from
Germany and France. The latter has failed to produce any growth
at all since the start of the year.
The final reading for euro area inflation of 0.4 percent in
July on an annualised basis, though weak, was in line with
The euro hit a high of $1.3396 after the overall euro
zone data, having fallen to $1.3348 after the German numbers,
close to a nine-month low of $1.3333 touched last week.
"You did see a little bit of a down-move on the German and
French data this morning but by the time you'd got to (the data
for) the euro area as a whole ... the consensus had moved," said
Marvin Barth, European head of currency strategy at Barclays.
German 10-year bond yields briefly traded
below 1 percent for the first time ever, after the disappointing
data from the supposed powerhouse of Europe.
Spanish and French bond yields also plumbed record lows as
the bloc's grim growth outlook increased pressure on the
European Central Bank to eventually print money to support an
economy bracing for the impact of tit-for-tat sanctions between
the West and Russia over Ukraine.
Thursday's data is the latest in a weak run. On Wednesday
numbers showed a surprise fall in euro zone industrial
production in June, while on Tuesday a survey showed investor
sentiment in Germany at its lowest in over 18 months.
"The overall picture is one of weakness coming from Europe
and that's going to keep the euro very much under pressure,"
said Ian Stannard, head of European currency strategy at Morgan
Stanley in London.
"That highlights the divergence we're seeing in the G10,
with disappointing data coming from most countries, with the
exception being the United States, and that's going to keep the
dollar supported across the board."
The dollar index stayed close to an 11-month high hit
last week, up almost 0.1 percent on the day at 81.540.
A better-than-expected rise in New Zealand's second quarter
retail sales helped to give the kiwi a boost, pushing it to a
1-1/2 week high of $0.8509. It last traded at $0.8503,
up over half a percent on the day - the biggest move among
Sterling continued to be on the defensive after the Bank of
England surprised investors on Wednesday by signalling it was in
no hurry to raise interest rates.
The pound hit a four-month low of $1.6657 before
recovering a little to trade at $1.6679, flat on the day. That
followed a 0.7 percent fall on Wednesday - its biggest drop in
over six months.
Wrong-footing the market again, BoE Governor Mark Carney
indicated that earnings developments would be key to the exact
timing of a rate move as the central bank slashed its forecast
for wage growth.
Just a few months ago, Carney made sterling jump by warning
investors that they were not sufficiently pricing in the chance
of an early increase in record-low rates.
Given the shift in Carney's comments, it may be difficult to
find reasons to buy the pound, said Masafumi Yamamoto, market
strategist for Praevidentia Strategy in Tokyo.
"I think we could start to see people chase the current
momentum and aggressively build short positions," he said.
(Additional reporting by Ian Chua in Sydney and Masayuki Kitano
in Singapore; Editing by Kevin Liffey)