April 29, 2014 / 7:40 AM / 3 years ago

FOREX-Draghi helps euro higher, UK growth numbers in focus

* Euro up after Draghi reported saying QE a long way off

* Sterling helped by Carney, near 4-1/2-year high before GDP

* Asian session subdued with Japan shut for holiday (New throughout, changes dateline from previous SYDNEY/SINGAPORE)

By Patrick Graham

LONDON, April 29 (Reuters) - The euro inched up against the dollar on Tuesday, helped by comments from European Central Bank policymakers cooling any expectations the bank will respond to low inflation by easing monetary conditions further.

The euro has struggled to push past a series of barriers since a first approach last month to the big psychological figure of $1.40 prompted warnings from the ECB about the currency’s strength.

But short-term euro zone interest rates continue to push higher, boosting returns on the currency, and a source said President Mario Draghi had told German lawmakers outright money-printing by the bank was still a long way off.

Preliminary German numbers are also expected to show inflation inching back up, easing pressure on the bank to take action to fend off the risk of a cycle of falling prices and demand.

“Draghi’s comments are one of the reasons the euro is holding strong this morning,” said Stephen Gallo, a strategist with Canadian bank BMO in London.

“I think the market is coming to the realisation that they are quite relaxed about the threat of disinflation, there are a lot of temporary factors behind the fall in inflation.”

Like many dealers and analysts, however, he underlined the lack of appetite to test the ECB’s resolve to take action against a stronger euro and any resulting drop.

The common currency rose almost 0.1 percent to $1.3873 . It also rose 0.3 percent to 142.37 yen, well above a one-week low of 140.99 yen seen on Monday.

Moves among major currencies were muted in Asia, as a public holiday in Japan dampened trading activity.


The day’s other big data release is UK gross domestic product, set to show one of the brightest of developed world economies improving further in the first quarter.

Sterling inched up 0.2 percent to $1.6840, helped by comments on the economy’s progress from Bank of England chief Mark Carney in an interview with a regional newspaper.

He said recovery was broadening while reiterating there remained a lot of slack in the labour market - reflecting the concern over the sources of growth that may yet keep interest rates low well into next year.

While sterling remains buoyant on the back of expectations the bank will raise official returns on the pound in 2015, views on its ability to add much to a 10 percent rise in the past 12 months are divided.

“We urge caution in GBP-USD today,” analysts from Commerzbank said in a morning note. “There is downward potential today, as good GDP data for Q1 is likely to be priced in already.” (Editing by Andrew Heavens)

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